Local government finance circular 9/2026: Investment Zones Non-Domestic Rates relief and income retention

Investment Zones Non-Domestic Rates relief

Introduction

1. As set out in the Investment Zones in Scotland: Technical document, non-domestic rates (NDR) relief was made available in specified “tax sites” within Investment Zones (IZ) (“IZ relief”), where the tax incentives were selected by the Regional Partnership (RP) and once those tax sites were designated on 26 February 2026. Businesses will potentially be eligible for up to 100% IZ relief on certain properties and property improvements within these tax sites, the intention being that this relief supports new businesses[1] as well as existing businesses[2] when they expand into new or unused space.
2. The relief will be available for up to 5 years from the point at which the beneficiary becomes eligible for IZ relief. As announced in the Spring Budget 2024, Scottish and UK Ministers have agreed that the window for Investment Zone Tax Reliefs will be extended from 5 years to 10 years (end date(s) for applications TBC). Scottish Ministers agreed to an extension subject to the outcome of a review in 2031 to look at uptake, impact and progress towards overall programme goals. That review will consider the actual cost of reliefs by comparison with forecasts within the overall financial envelope for the programme. Subject to the outcome of that review, the relief must be applied for before the end date in 2036 (exact date to be specified in due course). Eligible firms will be able to apply to the relevant local authority to access this relief.
3. This document is intended to provide non-statutory guidance for local authorities in relation to:

• the administration of the IZ relief by local authorities; and
• the reporting requirements for the provision of IZ relief and the detail of the funding mechanism from the Scottish Government to local authorities.

4. Enquiries on this measure should be addressed to the NDR team (NDR@gov.scot), Investment Zones team (fiona.wilson@gov.scot) and the Local Government Finance Statistics mailbox (lgfstats@gov.scot).

Investment Zone Relief Administration

5. The Scottish Government is not changing the legislation relating to NDR reliefs. Instead, the Government will, in line with the eligibility criteria set out in this guidance, provide local authorities that use their discretionary relief powers under Section 3A of the Local Government (Financial Provisions etc.) (Scotland) Act 1962, as amended by the Community Empowerment (Scotland) Act 2015 (Part 11) to award IZ relief, with additional limited General Revenue Grant funding (see the Funding Mechanism section below) for local authorities to use to fund the cost of IZ relief. IZ relief is entirely at local authorities’ discretion.
6. The Scottish Government will not meet any new burdens or costs associated with the administration of IZ relief.
7. Local authorities may wish to consider the following principles and conditions within their IZ relief policy:

Timespan and Eligibility

1. IZ relief is only available once the relevant tax site has been established and designated.
2. As announced in the Spring Budget 2024, Scottish and UK Ministers have agreed that the window for Investment Zones Tax Reliefs will be extended from 5 to 10 years, to 2036. The extension is subject to the outcome of a mid-point review in 2031. Subject to the outcome of that review, the relief must be applied for by the end date in 2036 (exact date to be specified in due course).
3. Subject to paragraphs a and b, IZ relief will be available for up to five years from the point at which the beneficiary becomes eligible for IZ relief even if another relief is awarded in lieu of IZ relief for some or all of that period, e.g. if a property is first eligible for IZ relief on 30 March 2028, the relief may be awarded until 29 March 2033. If the ratepayer has applied for Business Growth Accelerator (BGA) relief on the same property or rateable value growth on the property and is eligible for BGA relief, then BGA relief must be awarded as this is a mandatory relief. IZ relief would then be awarded from the end of the BGA relief award to, in this example, 29 March 2033 to provide five years of relief in total.
4. The trigger point for eligibility for IZ relief is the point at which one of the outlined circumstances below takes effect.

New Build and New Occupation

5. 100% relief is available on properties that become occupied for the first time within the timeframe above, regardless of whether they are occupied by new or existing businesses (the latter so long as it is expanding into a further property). This covers:

• Newly occupied new builds (note: new builds are those that should be identified by a mark on the valuation roll under section 2A of the Local Government (Scotland) Act 1975). To note, new builds that have never been occupied may also qualify for 100% Business Growth Accelerator relief for up to three years, including in IZs.
• A newly occupied existing property i.e. if the property is occupied by a ‘new business’ for the first time regardless of whether the property has been occupied previously; or by an ‘existing business’, providing the existing business is expanding into a separate further property in addition to the one(s) it already occupies in the IZ. This relief is only available when properties become occupied for the first time within the timeframe specified in paragraph (b), regardless of any previous occupation that ended prior to this timeframe.

New Part-property Occupation, and Property Improvements

6. 100% relief is available on the NDR bill associated with the rateable value of new space that has been newly[3] built and/or occupied; or to the increases in the rateable value of a property attributable to the improvements to an existing[4] occupied space. This covers:

• Where the occupier of a property creates new space by expanding the property (e.g. builds an extension).
• Where the occupier of a property newly occupies a previously unoccupied part of a property (e.g. newly occupies previously unoccupied rooms/floors in a property).
• Where the occupier of a property makes new space useable through a property development or improvement (e.g. installation of a mezzanine or access/fire control improvements to bring an existing space into use). Note: the mark on the valuation roll required for property improvements under section 2A of the Local Government (Scotland) Act 1975 may assist with identifying eligible parts of properties.

7. IZ relief cannot generally be claimed on new part-property occupation or property improvements if:

• the expansion is merely into a part of a property that was already in use by a previous occupier.
• the improvement is to a space that prior to the IZ tax site designation, was already occupied and in use (e.g. general refurbishment/improvements e.g. heating and air conditioning).
• the expansion pre-dates the IZ tax site designation.

Principles and Approach

8. Local authorities may choose to review or assess IZ relief awards, and request any information they deem reasonable to determine whether they wish to award IZ relief, including consulting with Scottish Assessors.
9. Local authorities may choose to refuse to award IZ relief, for instance where a ratepayer cannot substantiate their claim, or where an increase in rateable value and corresponding increase in NDR bills is not reasonably ascertainable by the local authority.
10. Local authorities have ultimate discretion over the award of IZ relief and may choose to apply additional tests that they deem appropriate in order to avoid incentivising displacement of activity in the IZ area from the surrounding area. They may for instance choose to reduce the award of IZ relief in cases where a ratepayer’s occupation of a space arises in whole, or in part, from them vacating another space in the IZ area, or in a surrounding area.
11. Investment Zones aim to help to maximise the impact of our world-class universities and colleges, building on existing strengths and grasping new opportunities to attract private investment, boost productivity, promote innovation, stimulate business growth and create high quality, well-paid jobs within the region. Local authorities may wish to have regard to these objectives and expectations when considering applications for IZ relief.
12. When determining the appropriateness of awarding IZ relief, local authorities may choose to consider if any connected companies, or groups of companies, should be considered as a single business for the purposes of IZ relief.

Funding Mechanism

8. Local relief schemes require to be funded from the relevant local authority’s budget, and as such IZ relief awards will not be deducted from the local authority's NDR Contributable Amount. In other words, the local authority will be required to contribute the cost of IZ relief awards to the NDR Rating Account (or ‘Pool’). However, the Scottish Government will provide additional General Revenue Grant (GRG) funding to councils in respect of IZ relief which falls within the parameters set out in this guidance.

Calculation of the amount of NDR reliefs that will be funded

9. The total amount of funding that the Scottish Government will provide to local government to compensate for the cost of IZ relief will be limited, based on the estimate provided to the RP during the IZ Gateway approval process. The allocation for each local authority will be agreed by the Scottish Government and the Regional Partnership (RP) responsible for the IZ, and will be set out in a Memorandum of Understanding.
10. The total amount of funding available to each RP will be calculated as follows:

• Subject to Spending Reviews, the UK Government will make available a total funding envelope of £160 million for each Investment Zone between the 2025-26 and 2034-35 financial years (a period of 10 years).
• Each RP will provide information about, and maps of, the proposed tax sites in their IZ as part of their gateway returns. The Scottish and UK Governments will use this information to estimate the costs of the devolved and reserved tax incentives.
• Estimates of the cost of reserved tax reliefs will be provided by HM Revenue and Customs based on information provided by the RPs on their tax site proposals. This amount will be deducted from the overall funding envelope.
• Estimates of the cost of devolved tax reliefs (NDR and Lands and Buildings Transaction Tax) will be provided by the Scottish Government based on the information provided by the RPs on their tax site proposals. This amount will be deducted from the overall funding envelope.
• RPs will be provided with the remainder of the funding envelope as “flexible spend”, in line with grant agreements. This can be used flexibly between spending and a tax incentive package, split 40:60 between resource (RDEL) and capital (CDEL) spending.

11. If, following designation, the actual cost of reserved tax reliefs is higher than estimated via the above process, the UK Government will meet those costs outside of the Investment Zone funding envelope.
12. Funding for IZ relief will be transferred by the Scottish Government directly to the local authorities with tax sites via additional General Revenue Grant funding. The annual NDR reimbursement for the tax sites will be the estimated total cost of the relief divided by 10 years (the programme timeline). No additional funding will be provided by the Scottish or UK Governments for NDR relief.
13. Total NDR relief costs are estimated over 15 years, as companies can apply for them for a 5-year period at any time during the 10-year window – so they could apply in Year 10 and have reliefs run until Year 15. Councils will receive the full estimated (15 year) relief costs over 10 years.

Subsidy Control

14. IZ relief awards are likely to amount to subsidy. The Scottish Government and the UK Government’s Ministry of Housing, Communities & Local Government have created a subsidy scheme for the Investment Zone programme and local authorities may utilise this when making non-domestic rates relief awards in accordance with this guidance. Details of the Scottish Investment Zones Subsidy Scheme are available at: https://searchforuksubsidies.beis.gov.uk/scheme/?scheme=SC11411
15. Under the Scottish Investment Zones Subsidy Scheme, any IZ relief awards made in accordance with this guidance are judged to be consistent with the subsidy control principles. This means that local authorities who satisfy themselves that an award complies with this guidance are not required to conduct their own assessment of the award against the subsidy control principles. It also means that a subsidy awarded under the scheme that complies with this guidance is provided in accordance with the terms of the Subsidy Control Act 2022. There is no cap to the value of a non-domestic rates relief award that can be made under the Scottish Investment Zones Subsidy Scheme. For the avoidance of doubt, subsidies awarded under the scheme do not constitute Minimal Financial Assistance and so do not cumulate with Minimal Financial Assistance awards.
16. Local authorities awarding IZ relief must put in place an appropriate mechanism to recover relief where it becomes necessary to do so to comply with the terms of the Subsidy Control Act 2022.
17. Local authorities must comply with the transparency requirements set out in Chapter 3 of Part 2 of the Subsidy Control Act 2022 and so will have an obligation to report some individual subsidies awarded under the scheme. Subsidies above £100,000, including those awarded under the Scottish Investment Zones Subsidy Scheme, are subject to transparency requirements. This is not cumulated per beneficiary, but applies per subsidy award. This means that for every individual subsidy provided of more than £100,000, the local authority needs to include details of the subsidy on the subsidy control database and link that award to the Scottish Investment Zones Subsidy Scheme. Local authorities can find details on how to upload awards to the database, including templates for notifying schemes and reporting on subsidy awards in the Scottish Government subsidy control guidance. All completed Notification of Subsidy Scheme and Transparency Reporting templates should be sent to subsidycontrol.transparency@gov.scot.

Interactions with other reliefs

18. A property may be eligible for IZ relief and another relief. For instance, if a new build comes into existence on 30 March 2028 in an IZ tax site and is occupied from that day, and it applies for BGA relief, it may receive 100% BGA relief for 12 months (30 March 2028 to 29 March 2029) and 100% IZ relief from 30 March 2029 to 29 March 2033. For clarity, it may not receive IZ relief for five years after BGA relief has ended, but only five years after the period of eligibility has commenced in respect of that particular property or property improvement.
19. Where a property is eligible for IZ relief and a mandatory relief which is not time-limited, e.g., charitable rates relief, then the charitable rates relief will be awarded. The local authority would be reimbursed for the cost of awarding this relief through usual mechanisms, as it would were it outwith the tax site.

Interactions with NDR Income Retention Schemes

20. See the guidance on Non-Domestic Rates income retention.

Recording and Reporting Investment Zone Relief Awards

21. IZ relief should be recorded in NDR statistical returns in the same way as other local reliefs.
22. IZ relief will feature in the Billing system snapshot data collection from 2025-26 onwards. The relevant guidance and relief code will be published at https://www.gov.scot/publications/billing-system-snapshot/.
23. IZ relief will feature in NDRI returns along with other local reliefs.
24. Information on IZ relief awards should also be published in accordance with the local authorities’ relief recipients lists. The relief type, code, percentage and amount awarded should be presented in the same way as in the Billing system snapshot. Local authorities should consult the Billing system snapshot guidance should they have questions on the reporting of the relief (i.e. if a property is in receipt of another relief as well as IZ relief).
25. Separately, the Scottish Government may occasionally request that local authorities complete a survey in relation to IZ relief awards for the purpose of policy evaluation.