Scottish Budget: income and wealth tax changes explained

In a boost for those on lower incomes, Scottish taxpayers will see some income tax thresholds rise from 6 April 2026 for earned income. 

But the 788,000 Scottish taxpayers who are forecast by the Scottish Fiscal Commission to pay tax at the higher rate and above from 2026 will still be at the mercy of fiscal drag. This is because the higher, advanced and top rate thresholds will remain frozen until at least 2028/29.

Scottish taxpayers face different rates and bands of income tax for most of their taxable income. This includes salary, bonuses and pension income. However, savings interest and dividend income are taxed at the same rates as the rest of the UK. 

Finance secretary Shona Robison said in her speech that over 55% of Scots will pay less income tax because they live in Scotland instead of England, Wales or Northern Ireland.

What’s happening to Scottish income tax?

At present, those earning up to around £30,000 pay less tax in Scotland thanks to the 19% ‘starter rate’ of Scottish income tax on a small band of earnings above the tax-free personal allowance. This will expand to between £12,571 and £16,537 from 6 April 2026, from the current band of £12,571 to £15,397. The basic rate band will then apply on the next slice up to £29,526 at 20%, with an intermediate rate of 21% applying from £29,527 to £43,662.

But those earning above this amount face higher income tax rates than the rest of the UK at 42%, 45% and 48% at the very top. Middle earners with incomes between £43,663 and £50,270 are particularly squeezed as they will also face deductions for UK-wide National Insurance at the 8% rate on this band, giving them a marginal overall tax rate of around 50%, versus 42% for the rest of the UK on the same amount of earnings.

It’s worth mentioning that Scottish taxpayers paying income tax above 20% can claim additional tax relief on their pension contributions. This could mean up to 28% relief up to the amount of any income they have paid 48% tax on. Like the rest of the UK, this can be claimed on a self-assessment return for those who already file one, or directly from HMRC online.

What are the new Scottish wealth taxes? 

Other announcements included a version of the ‘mansion tax’ and a new departure tax for travelling by private jet, both due in 2028.

Estimated to affect fewer than 1% of Scottish households, two new council tax bands will be introduced for properties worth more than £1 million from 1 April 2028 using up to date values. The rest of the council tax system and rates of stamp duty on property sales will remain unchanged.