Local government finance circular 1/2026: settlement for 2026 to 2027
Details of the Local Government Finance (Scotland) Order 2026 - settlement for 2026-27, redeterminations for 2025-26 and non domestic rates for 2026-27.
1. This Local Government Finance Circular provides details of the provisional total revenue and capital funding allocations for 2026-27, as well as the latest information on current known redeterminations for 2025-26. This Circular also provides details on a range of Non-Domestic Rates measures, including the proposed 2026-27 rates and changes to certain reliefs.
2. These provisional total funding allocations form the basis for the annual consultation between the Scottish Government and COSLA ahead of the Local Government Finance (Scotland) Order 2026 being presented to the Scottish Parliament. This is currently scheduled for the end of February 2026.
3. We expect local authorities to inform COSLA, and for COSLA in turn to inform the Scottish Government by no later than 20 January 2026, if they think there are any discrepancies or changes required to these provisional allocations. Redistribution(s) to address any agreed discrepancies or changes will be undertaken within the total settlement allocations set out in this Circular and not through the provision of any additional resources by the Scottish Government. The allocations are therefore provisional only at this stage, with the final allocations not being confirmed until after the end of the consultation period and the publication of the Local Government Finance Circular which will follow the approval of the Local Government Finance (Scotland) Order 2026.
4. The Cabinet Secretary for Finance and Local Government wrote to the COSLA President, copied to all Council Leaders on 13 January 2026, confirming the package of measures that make up the settlement to be provided to local government. This Circular should be read in conjunction with that letter. The terms of this settlement have been discussed with COSLA on behalf of all 32 of its member councils.
5. The Scottish Government will work in partnership with local government to implement the budget and the joint priorities in return for the full funding package worth almost £15.7 billion and includes:
- a further £773.8 million of funding that has now been baselined as General Revenue Grant, as part of our commitment under the Verity House Agreement to review ring-fenced funding, that’s almost £2.3 billion since 2024-25
- additional General Revenue Grant of £253.9 million to support local priorities;
- an additional £3 million to support Free School Meals
- £160 million for adult social care workers in commissioned services
- an additional £11 million to improve pay for early learning and childcare workers in commissioned services
- £11 million to support development of people working in children’s social work
- £7 million to support provision of Free Personal and Nursing care
- £20 million to tackle the climate emergency
- £40 million to improve active travel infrastructure
- an additional £11.4 million resource and £15.5 million capital to improve inter-island connectivity
6. In addition to the funding set out in this Circular it should be noted that there are a number of further revenue and capital funding streams outwith the local government finance settlement for particular policy initiatives which deliver on shared priorities and support local government services. Table 4.17 in the Scottish Government’s “Budget Document: 2026-27”, which was published on 13 January 2026, provides provisional details of these funding streams but as with previous years, the actual sums payable will be notified by the relevant policy team at the earliest opportunity.
7. The allocations have been arrived at using the standard agreed needs-based distribution methodology and updated indicators. The funding floor has been set at 0.5% below the average, at an increase of 2.41%.
8. Any undistributed sums will be allocated in the standard way following consideration by the Settlement and Distribution Group. We have shared a separate note with COSLA and Directors of Finance providing a full reconciliation of the changes between the 2025-26 and 2026-27 Budgets. We have also provided full details of all the revenue and capital allocations.
9. The various parts and annexes to this Circular, listed below, provide more of the detail behind the calculations.
- Part A: Local Government Finance Settlement – Revenue: 2026-27 and changes in 2025-26
- Part B: Local Government Finance Settlement – Capital: 2025-27
- Part C: Non-Domestic Rates for 2026-27
The various Annexes included in this Circular are as follows:
Annex A: All Scotland Aggregated Funding Totals 2025-27
Annex B: Individual Revenue Allocations for 2026-27
Annex C: Revised Individual Revenue Allocations for 2025-26
Annex D: Explanatory Notes on the Revenue Distribution
Annex E: Estimates of Ring-Fenced Grant Revenue Funding for 2026-27
Annex F: Floor calculation for 2026-27
Annex G: Redeterminations of Individual Revenue funding for 2025-26
Annex H: 2008-26 Changes Column
Annex I: General Capital Grant and Specific Capital Grants 2026-27
Annex J: Updated General Capital Grant 2025-26
Annex K: Total Local Government Funding Settlement 2026-27
Part A: Local Government Finance Settlement - Revenue: 2026-27 and changes in 2025-26
10. This Finance Circular sets out the provisional distribution of revenue funding allocations for 2026-27. Annex A of this Circular sets out the all-Scotland aggregate totals for 2025-26 and 2026-27.
11. Annexes B and C set out the distribution of the total revenue funding allocation between councils and the allocation of the different elements (General Revenue Grant Funding, Non-Domestic Rate Income and Specific Revenue Grants) for each council for 2026-27 and 2025-26 respectively. The explanatory notes contained in Annex D explain the basis behind the calculation of the individual council grant allocations.
12. Annex E gives a breakdown of the provisional individual council shares of all the ring-fenced revenue grant allocations for 2026-27. The provisional total for specific grants included in the circular is £11.4 million less than was published in the 2026-27 Scottish Government Budget due to the in-year transfer to the General Revenue Grant from the Support for Inter Island Connectivity specific grant. The variance of £10.6 million for Pupil Equity funding was included in table 4.15 of the Scottish Budget (Local Government Attainment Grants) and will also be transferred in-year.
13. The calculation and effects of the main floor adjustment for 2026-27, which provided councils with a minimum increase in the funding used in the calculation of the main floor of 2.41%, is set out in Annex F of this Circular. The setting of the floor is in line with the discretion accorded to Scottish Ministers with the percentage set at 0.5% below the average.
14. This Circular confirms the continuation of the 85% funding floor for 2026-27. The methodology compares total revenue funding plus local authorities’ assumed council tax income and any council whose total support under this method falls below 85% will be topped up to ensure that all councils receive 85% of the Scottish average total revenue support per head. To ensure that all 32 local authorities exceed 85% of the Scottish average, £4.9 million of funding has been provided.
15. This Local Government Finance Circular provides details of current known 2025‑26 redeterminations at Annex G for the General Revenue Grant.
16. Annex H summarises the column within the settlement titled 2008-26 Changes Column.
Part B: Local Government Finance Settlement – Capital Grants 2025-27
17. In 2026-27 the Local Government Settlement provides capital grants totalling £681.4 million. This is made up of General Capital Grant totalling £569.2 million and Specific Capital Grants totalling £112.2 million.
18. Annex I sets out the provisional distribution of the Settlement for capital per local authority for 2026-27. The methodologies used to calculate these provisional allocations have been agreed with COSLA. Capital grants which remain undistributed are identified as such.
19. Annex J provides a breakdown of the updated 2025-26 General Capital Grant allocations by local authority.
20. Annex K summarises the Local Government Finance Settlement for 2026-27.
Part C: Non-Domestic Rates for 2026-27
21. The Distributable Amount of Non-Domestic Rates Income for 2026-27 has been provisionally set at £3,474 million. This figure uses the latest forecast of net income from non-domestic rates in 2026-27 and also draws on council estimates of the amounts they will contribute to the Non-Domestic Rating Account (the ‘Pool’) in 2025-26. The figure incorporates the Scottish Fiscal Commission’s estimate of the contributable amount and includes a calculation of gross income; expected losses from appeals; estimated expenditure on mandatory and other reliefs; write-offs and provision of bad debt together; and estimated changes due to prior year adjustments. The distribution of Non-Domestic Rates Income for 2026-27 has been based on the amount each Council estimates that it will collect (based on the 2025-26 mid-year estimates provided by councils). General Revenue Grant provides the guaranteed balance of funding. This method of allocation provides a clear presentation of the Non-Domestic Rates Income per council and transparency in the make-up of council funding.
22. The 2026-27 Non-Domestic Basic Property Rate (‘poundage’) is provisionally set at 48.1 pence, a decrease from last year. The Intermediate Property Rate (levied on properties with a rateable value from £51,001 to £100,000) and Higher Property Rate (levied on properties with a rateable value over £100,000) will also both decrease, to 53.5 pence and 54.8 pence respectively.
23. A new 15% non-domestic rates relief will be available in 2026-27 and up to 31 March 2029 for retail, hospitality and leisure premises liable for the Basic or Intermediate Property Rate, those with a rateable value up to and including £100,000. This relief is capped at £110,000 per ratepayer per year.
24. A 100% non-domestic rates relief will be available in 2026-27 and up to 31 March 2029 for properties in the retail, hospitality and leisure sectors on islands, as defined by the Islands (Scotland) Act 2018, and prescribed remote areas (Cape Wrath, Knoydart and Scoraig), capped at £110,000 per ratepayer per year.
25.Revaluation Transitional Relief will be available for the next three years (2026-27 to 2028-29) and will cap increases in gross rates liabilities for those seeing the highest increases in rateable values at revaluation.
Year-on-year Revaluation Transitional Relief caps (%), 2026-27 to 2028-29
| 2026-27 | 2027-28 | 2028-29 | |
|---|---|---|---|
| Small (rateable value up to £20,000) | 15% | 22% | 38% |
| Medium (rateable value £20,001 to £100,000) | 30% | 44% | 75% |
| Large (rateable value over £100,000) | 50% | 75% | 113% |
26. Small Business Transitional Relief will ensure that those ratepayers losing, on 1 April 2026, eligibility for Small Business Bonus Scheme relief (including shootings and deer forests, but excluding those properties that require a short-term let licence but do not have one), rural relief, hospitality relief or Small Business Transitional Relief introduced for the 2023 revaluation cycle, do so in a phased manner. Eligible ratepayers will pay 25% of any increase to their net bill in the first year (2026-27), 50% in the second year (2027-28) and 75% in the third year (2028-29).
27. 100% relief will be available for eligible Electric Vehicle-charging points for 10 years from 1 April 2026.
28. The following reliefs will be maintained: business growth accelerator relief, charitable rates relief, day nursery relief, disabled rates relief, district heating relief, fresh start relief, hardship relief, hydro relief, new fibre relief, renewable energy relief, rural relief, small business bonus scheme relief, sports club relief and stud farms relief.
29. Shootings and deer forests will be however excluded from eligibility for Small Business Bonus Scheme relief from 1 April 2026, except where a) shooting rights are exercised solely for the purposes of deer management, including to prevent damage to woodland or to agricultural production, environmental management or vermin control, b) crofts and c) all forms of agricultural and small landholding tenancies, leases for new entrants, and leases agreed for environmental purposes. Premises requiring a short-term let licence to operate will only be eligible for Small Business Bonus Scheme relief if they have a short-term let licence, from 1 April 2026. Payday lenders, advertisements, car parks, and betting shops will remain ineligible for Small Business Bonus Scheme relief.
30. All the property categories which are ineligible for Small Business Bonus Scheme relief will also be ineligible for Fresh Start relief from 1 April 2026.
31. Empty Property Relief was devolved to local authorities on 1 April 2023 covering all relief and rates exemptions for fully unoccupied properties including listed buildings, properties where the owner is in administration, etc. Partly unoccupied properties that the council requests be apportioned by the assessor will be liable for rates on the occupied portion only. Councils may offer their own local reliefs under the Community Empowerment (Scotland) Act 2015 including to empty properties.
32. NDR reliefs, like other subsidy or support measures, may be subject to the Subsidy Control Act 2022.
33. Information on the Non-Domestic Rates Incentivisation Scheme (NDRIS) will be set out in a future circular.
34. Since 2019-20, the Scottish Government has provided Local Government Revenue Funding to support the additional costs met by Scottish Assessors in respect of the implementation of the recommendations of the Barclay Review of Non-Domestic Rates. The 2026-27 Settlement includes a further £1 million to support this aim. Local authorities are expected to continue to pass on the allocated quantum for this to Assessors, including the additional funding and the increment in line with the 2026-27 settlement. Further resource and capital funding for Scottish Assessors, including funding to support a partial Council Tax Revaluation, will be subject to consideration by the Settlement and Distribution Group in due course.
Enquiries relating to this Circular
35. It should be noted that figures in this Circular may be marginally different from final allocations due to roundings. Local authorities should note that if they have any substantive specific enquiries relating to this Circular these should, in the first instance, be addressed through COSLA. We have given an undertaking to respond to these queries as quickly as possible. Contact details for COSLA are: Mirren Kelly mirren.kelly@cosla.gov.uk
Any other queries should be addressed to the following:
Local Government Revenue and Capital Settlement. Craig Inglis Craig.Inglis@gov.scot
Non-Domestic Rates. Anouk Berthier Anouk.Berthier@gov.scot
36. This Circular, along with the supporting tables will be made available through the Local Government section of the Scottish Government website.
Yours faithfully
Ellen Leaver
Director, Local Government
