Scottish Budget 2026 to 2027: Scottish tax ready reckoners
This note presents a set of ready reckoners which show the estimated revenue impact of illustrative changes to Scottish tax policy in 2026-27, including Income Tax, Land and Buildings Transaction Tax (LBTT) and Non-Domestic Rates (NDR), relative to the policies announced for 2026-27.
Land and Buildings Transaction Tax
Land and Buildings Transaction Tax (LBTT) is a fully devolved tax which came into effect from 01 April 2015. It applies to residential and non-residential land and buildings transactions (including commercial leases) where a chargeable interest is acquired.
The tax applies a progressive rates and bands structure, with the marginal tax rate increasing as the value of the transaction increases. The current rates and bands for residential and non- residential LBTT conveyances are set out in Tables 3 and 4 below.[7]
For certain transactions, the Additional Dwelling Supplement (ADS) may also apply in addition to LBTT at a flat 8% rate.
Rates, bands, reliefs and any other elements of LBTT tax policy can be amended through legislation, subject to approval by the Scottish Parliament.
| Proportion of consideration in each band | Rate |
|---|---|
| £0-£145,000* | 0% |
| £145,001-£250,000 | 2% |
| £250,001-£325,000 | 5% |
| £325,001-£750,000 | 10% |
| Above £750,000 | 12% |
*For first-time buyers the nil rate band ceiling is £175,000 due to the availability of a relief.
| Proportion of consideration in each band | Rate |
|---|---|
| Up to £150,000 | 0% |
| £150,001 to £250,000 | 1% |
| Above £250,000 | 5% |
Table 1 illustrates the estimated revenue gains and losses when these marginal LBTT tax rates are increased, or decreased, in isolation for each tax band.
The cumulative revenue impact of changing the tax rate in all bands by one percentage point is not equal to the sum of changing the tax rate in each tax band by one percentage point due to the way in which behavioural elasticities are calculated. However, for small changes in tax rates, summing up the impacts of changes in individual tax bands will give a reasonable approximation of the overall tax impact.
Changes to residential LBTT rates can have an impact on both core residential LBTT revenue and LBTT ADS revenue. This is also the case for any change to the ADS rate. Accordingly, the revenue impacts in Table 1 reflect the sum of the impacts on both elements of LBTT.
For example, an increase in the ADS rate is assumed, through behavioural effects, to reduce core residential LBTT revenue due to the loss of the LBTT on those ADS transactions which do not proceed. However, this will be partly offset to the extent that any “lost” ADS transactions are absorbed by the main LBTT market (i.e. residential transactions which are not liable for ADS). Consistent with judgements made by the SFC, we assume that 50% of transactions lost due to the ADS increase will be absorbed by the main market in the first year of the policy.
Annual estimates of the impact of a change to the ADS rate on revenue are further complicated by the need to consider the potential for repayments to occur during later years. For example, although a one percentage point increase in the ADS rate in 2026-27 from its current level of 8% would result in relevant transactions paying at an ADS rate of 9%, some repayments claimed in 2026-27 would relate to transactions from previous years where ADS was paid at a 6% or 8% rate. Without an adjustment to take account of this, the estimated revenue impact for 2026-27 would tend to overstate the long-run position, in which payments and repayments would be based on the same rate. The reverse would be true for a reduction in the ADS rate. To avoid this, the estimated revenue impact presented in Table 1 is based on the change in revenue from those transactions where no claim for repayment is expected to be made.
Areas of uncertainty
Some key types of uncertainty which affect costings of changes to property transaction taxes are set out below.
- Forecasts involving the residential or the non-residential property markets involve estimating the path of both transactions and property market prices. These are inherently difficult to predict as they are influenced by many factors, including: the cost of borrowing; cost of construction materials; earnings and employment; and wider economic growth.
- For any transaction tax (such as LBTT), forecasting the number of transactions is complex, as households and businesses generally have more discretion about when to purchase long-term assets such as property than they do about other types of more day-to-day spending. Since a relatively small share of higher-value residential, and particularly non-residential, transactions account for a large share of revenue, uncertainty around transaction levels at the top end of the market can have a significant impact on revenues.
- As a result, when taxes change there will be an associated behavioural change (transactions may be initiated, postponed, or cancelled). Measuring the extent of these behavioural changes relies on accurately predicting the tax elasticities (the responsiveness) associated with that change. Data from which such elasticities can be derived is often limited and/or dated and/or not specific to Scotland, and the policy costings therefore relies on judgement from the SFC on which elasticities to use. We have replicated the SFC’s elasticities and approach to behaviour in our costings.