Scottish Budget 2026 to 2027: Scottish tax ready reckoners

Introduction

Building on our Framework for Tax, Scotland’s Tax Strategy^[1] outlines our approach to tax policymaking, an important part of which is to engage more with stakeholders and increase public understanding of tax policy. As part of this approach, the Scottish Government has published ‘ready reckoners’ annually since March 2021, first for Income Tax and now for other devolved taxes. This is in line with similar publications by HMRC and the Welsh Government[2]. Because some devolved taxes such as Scottish Landfill Tax and Scottish Aggregates Tax are principally designed to influence behaviour in support of wider circular economy policy rather than to raise revenue, ready reckoners for them are not included. The purpose of the ready reckoners is to assist researchers and policymakers in considering the revenue impacts of illustrative policy changes to improve transparency and facilitate public understanding in this area.

The ready reckoners in Table 1 provide an order of magnitude of how much revenue could be raised, or foregone, over and above the policies announced for 2026-27. For example, a 1p increase in the Starter Rate of Income tax is estimated to raise £110m in addition to the 2026-27 policy package. They are not intended to be exhaustive, but can be used to understand the potential impacts of tax policy proposals on the Scottish Budget.

The ready reckoners have been produced by Scottish Government analysts using in-house economic models that are in line with the SFC’s general framework and assumptions for policy costings, as set out in detail by the SFC in May 2021.^[3] In practice, the SFC costs policies on a case-by-case basis, considering the details of each individual policy and the wider economic context. The ready reckoners should therefore be used to provide only a broad indication of the potential revenue impacts, as the SFC’s final policy costings when produced following a tax change may differ.

The ready reckoners only show the direct impact on Scottish tax liabilities and receipts and do not include any wider effects on the Scottish economy, other devolved or local tax receipts, or UK Government revenues. Some behavioural responses are captured for Income Tax and for the rates of residential LBTT, non-residential LBTT and the (residential) Additional Dwelling Supplement. These behavioural responses include, for example, decisions on whether to work or not, whether to re-locate to or from other parts of the UK or the world to Scotland, or whether to proceed with or how much to pay for the purchase of land or property. No behavioural responses are included for NDR.

All ready reckoners assume that there is no forestalling behaviour. Forestalling refers to a situation where taxpayers move income, or transactions, across time for the specific purpose of minimising their tax burden (e.g. bring forward income, or a transaction, to avoid a future tax rate increase, or delay income, or a transaction, to benefit from a future tax rate decrease).

* For Income Tax rate changes, the impacts of tax increases and tax decreases are broadly symmetric. This means a 1p increase in any rate will raise broadly the same amount as a 1p decrease in that same rate would cost. Top Rate costings are considerably uncertain due to the likely stronger behavioural responses at this level.

** The zero-rate threshold for home movers is equal to £145,000. For first-time buyers the threshold is £175,000.

*** Estimated revenue impacts of a change in the ADS rate are based on those transactions which are liable for ADS and where no claim for repayment is expected to be made in the future (the share of such transactions is estimated taking into account historic trends). In line with judgements made by the SFC, we assume the “main” market (i.e. residential LBTT transactions which do not pay ADS) absorbs 50% of the ‘lost’ ADS transactions caused by an increase in the ADS rate in the first year of this policy (similarly for a rate cut, 50% of additional ADS transactions are assumed to switch from the main market). See the main text for further discussion.