Scottish Budget 2026 to 2027

Chapter 2 Tax Policy

Context

The 2026–27 Scottish Budget is presented at a time when fiscal responsibility, fairness, and stability remain essential to supporting Scotland’s people, communities, and public services.

This Budget builds on the foundations laid over recent years, during which changes to Scotland’s taxes have delivered a fair and progressive system while generating significant additional revenues. Building on our Tax Strategy,^[1] published alongside the 2025-26 Budget, we have maintained this progressive approach while prioritising stability for taxpayers, delivering a predictable and transparent framework that supports economic confidence while safeguarding the public finances.

By raising the Basic and Intermediate rate thresholds by substantially more than inflation, we will maintain our longstanding principle that the majority of Scottish taxpayers should pay less Income Tax than they would elsewhere in the UK.

Freezing the Higher, Advanced and Top rate thresholds for Income Tax, while maintaining all current Land and Buildings Transaction Tax (LBTT) rates, will strengthen revenues while ensuring the overall system remains progressive.

We will continue to align Scottish Landfill Tax rates with equivalent UK rates, ensuring consistency and simplicity for taxpayers, and have introduced legislation to confirm that the rate of the new Scottish Aggregates Tax (SAT) in its first year will match that of the UK Aggregates Levy.

At the same time, we continue to support businesses through competitive Non-Domestic Rates and by retaining reliefs such as the Small Business Bonus Scheme, ensuring Scotland remains an attractive place to live, work, invest, and grow.

We will introduce new Council Tax bands for the most highly valued residential properties to improve fairness at the top end of the system. The change will apply up-to-date values only to those properties valued at over £1 million, while the wider Council Tax framework remains unchanged. This targeted measure recognises that some multi-million pound properties currently face bills that are not materially different from far more modest homes, and ensures that the very highest value properties make a fairer contribution. Fewer than one per cent of households will be affected, maintaining stability for the vast majority of taxpayers. The new bands will take effect from 01 April 2028.

The introduction of Air Departure Tax (ADT) in April 2027, alongside the introduction of SAT in April 2026 and the Building Safety Levy (BSL) in April 2028, will complete the delivery of the new taxes we have committed to introducing under the Scotland Act powers.

Guided by Adam Smith’s principles of Certainty, Proportionality, Convenience, and Efficiency, this Budget reflects our commitment to a fair, sustainable, and responsive tax system shaped through extensive engagement with stakeholders across Scotland.

Income Tax

The Scottish Parliament has the power to set the Income Tax rates and bands for the non‑savings, non‑dividend income of Scottish taxpayers. Responsibility for the remainder of the Income Tax system, which includes all reliefs and exemptions, and setting the UK‑wide Personal Allowance and associated taper rate, is reserved to the UK Parliament. Income Tax on savings and dividends income is also reserved.

Policy

The Tax Strategy signalled a period of stability for Income Tax to the end of this Parliament. Income Tax policy for 2026-27 fulfils the commitments we made not to introduce any new bands or increase rates, while continuing to ensure that over half of Scottish tax payers can expect to pay less than they do in the rest of the UK. In 2026-27, we propose increasing the Basic and Intermediate rate thresholds by 7.4 per cent, substantially higher than inflation, in order to protect lower-income households. Table 2.01 shows the new bands for 2026-27.

Continuing to maintain the Higher, Advanced and Top rate thresholds at their current levels is estimated to contribute around £190 million to the Scottish Budget in 2026-27, providing important additional revenue to invest in our public services. In light of the UK Government decision to extend personal tax threshold freezes, we will continue to maintain the Higher, Advanced and Top rate Thresholds at their current levels until 2028-29.

Table 2.01: Scottish Income Tax Policy 2026-27

Band	Income Range	Rate
Starter rate	£12,570 - £16,537	19%
Basic rate	£16,538 - £29,526	20%
Intermediate rate	£29,527 - £43,662	21%
Higher rate	£43,663 - £75,000	42%
Advanced rate	£75,001 - £125,140	45%
Top rate	Over £125,140	48%

Scottish Rate Resolution

The Scottish Parliament must pass a Scottish Rate Resolution each year to set the rates and bands for Scottish Income Tax. A draft of the motion setting out the proposed Scottish Income Tax rates and bands for 2026-27, and an accompanying explanatory note, has been published alongside the Budget.

Forecast

The Scottish Fiscal Commission (SFC) forecast that Income Tax will raise £21,508 million in 2026-27. Table 2.02 below contains the SFC’s Income Tax forecast.

Table 2.02: Scottish Income Tax Revenue Forecasts 2025-26 to 2030-31

£ million	2025-26	2026-27	2027-28	2028-29	2029-30	2030-31
Scottish Income Tax	20,280	21,508	22,828	24,051	25,398	26,729

The SFC has estimated that our Income Tax policy choices since devolution will raise up to an additional £1.8 billion in 2026-27 compared to if we had matched UK Government policy. The difference between this amount and the net position reflects behavioural responses by taxpayers and underlying differences between the tax bases, which together with differentials in average earnings drive Income Tax performance.

The UK Budget increased the rate of Income Tax charged on property income in the rest of the UK by 2p from 2027-28. The UK Government has committed to devolve an equivalent power, to set a separate rate for property income in Scotland, as part of the UK’s annual Finance Act. Subject to legislative consent from the Scottish Parliament, the first year this power could come into effect would be 2027-28.

Land and Buildings Transaction Tax (LBTT)

LBTT applies to residential and non-residential land and buildings transactions (including commercial leases) where a chargeable interest is acquired. The Additional Dwelling Supplement (ADS) is payable, as part of LBTT, on purchases of all relevant residential properties for £40,000 and above.

Policy

We will continue to maintain residential rates and bands at their current level for LBTT. This preserves our progressive system, delivering certainty and stability for taxpayers. The ADS will remain at 8 per cent.

The First-Time Buyer Relief will continue to be available. This has the effect of increasing the residential nil rate band from £145,000 to £175,000 for first-time buyers. In the period from introduction to the end of November 2025, almost 105,000 first-time buyers have benefited from the relief, saving up to £600 of tax on the purchase of their first home.

We will also maintain current non-residential LBTT rates and bands, which remain broadly competitive in a UK context and again provides certainty and stability for taxpayers.

Following our commitment made in the 2025-26 Scottish Budget, on 07 January 2026 we laid before the Scottish Parliament legislation to provide for an exemption from LBTT for transactions in Co-Ownership Authorised Contractual Scheme (CoACS) units. Subject to the approval of the Scottish Parliament, this legislation will come into effect on 01 April this year.

We also consulted on the case for introducing a Reserved Investor Fund (RIF) framework under LBTT, and the case for relief for the seeding of properties from existing unauthorised investment vehicles into Property Authorised Investment Funds (PAIFs), RIFs, and CoACS. The Scottish Government welcomes the engagement and discussions with stakeholders and industry experts on these points. The consultation highlighted a number of complexities in introducing both a RIF framework and seeding relief, particularly given the pan-UK nature of the funds in question. These issues require further detailed consideration in order to ensure that any LBTT amendments operate effectively.

As announced in the Scottish Budget 2025–26, a comprehensive review of LBTT is underway to examine various aspects of the residential and non-residential arrangements for the tax. As part of this work, we have commissioned independent external researchers to explore several key policy areas, including First-Time Buyer relief and the treatment of mixed-use transactions.

Alongside this, Scottish Government officials are progressing an internal review focusing on non-residential leases, measures to support investment in Scotland, and the impact of the ADS where exceptional circumstances or events occur, working closely with tax, legal, and accountancy stakeholders; industry experts; and Revenue Scotland.

The review aims to provide evidence to support decisions in the next Scottish Parliament, with findings to be published before the end of this Parliamentary session.

Rates and Bands

Rates and bands in 2026-27 will remain as per tables 2.03 to 2.05 below.

Table 2.03: LBTT Rates and Bands for Residential Conveyances*

Band	Relevant Consideration	Rate
Nil rate band	Up to £145,000	0%
First tax band	Above £145,000 to £250,000	2%
Second tax band	Above £250,000 to £325,000	5%
Third tax band	Above £325,000 to £750,000	10%
Fourth tax band	Above £750,000	12%

*If the First-Time Buyer relief applies, the effect is to increase the nil rate band to £175,000

Table 2.04: LBTT Rates and Bands for Non-Residential Conveyances

Band	Relevant Consideration	Rate
Nil rate band	Up to £150,000	0%
First tax band	Above £150,000 to £250,000	1%
Second tax band	Above £250,000	5%

Table 2.05: LBTT Rates and Bands for Non-Residential Leases*

Band	Net present value of rent payable	Rate
Nil rate band	Up to £150,000	0%
First tax band	Above £150,000 to £2m	1%
Second tax band	Above £2m	2%

*LBTT on lease premiums is payable at the same rates and bands as non-residential conveyances.

In addition, the ADS may apply to the total price of the property for all relevant transactions of £40,000 or more, and will be charged in addition to the rates set out above. This will apply at a rate of 8 per cent.

Forecast

The forecasts for Land and Buildings Transaction Tax revenues are set out in Table 2.06 below.

Table 2.06: LBTT Revenue Forecasts 2025-26 to 2030-31

£ million	2025-26	2026-27	2027-28	2028-29	2029-30	2030-31
Land and Buildings Transaction Tax of which:	1,014	1,049	1,090	1,141	1,195	1,251
Residential transactions (excl. ADS)	543	584	619	656	694	734
Additional Dwelling Supplement (ADS)	220	205	202	207	213	218
Non-residential transactions	251	260	269	278	288	298

Figures may not add due to rounding

Scottish Landfill Tax (SLfT)

SLfT applies to the disposal of waste to landfill, charged by weight, on the basis of two rates: a standard rate; and a lower rate for less polluting materials.

Policy

Scotland is committed to reducing waste, increasing recycling, and cutting landfill use as part of its transition to a circular economy. SLfT plays a key role in achieving these goals by creating a strong financial incentive to divert waste away from landfill.

We will introduce legislation to increase both SLfT rates from 01 April 2026 to align with UK Landfill Tax rates for 2026–27. This maintains policy consistency and prevents waste being moved across borders due to rate differences. Notably, the lower rate of tax will more than double, reinforcing the signal to reduce landfill use.

Given wider circular economy and waste policy developments, we will commission independent research in 2026 to explore potential SLfT reforms, including to rate structures. This research will be intended to inform decisions in the next Scottish Parliament, including on whether a formal evaluation of the tax should be undertaken.

The current arrangements for the Scottish Landfill Communities Fund (SLCF) allow landfill operators to contribute a capped share of their tax liability to community and environmental projects via the SLCF, reclaiming 90 per cent as a tax credit.

However, declining SLfT revenues mean the fund is no longer sustainable in its current form. Following public consultation on the future of the fund in 2025, we will introduce legislation before the Scottish Parliament to close the SLCF to new contributions from 01 April 2026. Prior contributions to Approved Bodies should enable funding for existing and new projects to continue until March 2028. This will ensure continued support for communities during the wind-down period. An analysis of responses to the consultation will be published separately on 15 January.

Rates

We will introduce legislation to increase from 01 April 2026:

• the standard rate of SLfT to £130.75 per tonne; and
• the lower rate of SLfT to £8.65 per tonne.

The forecasts for SLfT revenues are set out in Table 2.07:

Table 2.07: SLfT Revenue Forecasts 2025-26 to 2030-31

£ million	2025-26	2026-27	2027-28	2028-29	2029-30	2030-31
Scottish Landfill Tax	50	27	21	23	24	26

Scottish Aggregates Tax (SAT)

The Scotland Act 2016 gave the Scottish Parliament the power to introduce a devolved tax to replace the UK Aggregates Levy in Scotland. The UK levy is paid on the commercial exploitation of aggregates, in essence crushed rock, sand, and gravel.

Assuming that the necessary outstanding legislation is approved, SAT will be introduced on 1 April 2026.

Policy

The Scottish Government’s Medium Term Financial Strategy 2025 confirmed that the SAT rate in 2026-27 will align with the UK Aggregates Levy 2026-27 rate, to ensure stability and certainty during the transfer of powers.

The SAT rate beyond the first year of introduction will be a decision for a future administration in the next session of the Scottish Parliament.

Prior to SAT being introduced, a Block Grant Adjustment (BGA) has to be agreed between the Scottish and UK Governments. Under the Fiscal Framework agreement, an initial baseline is used to inform BGAs. The baseline is calculated on forecasts for the year preceding introduction of the devolved tax and then reconciled at a later date using actual tax revenue data for that year.

The SAT BGA requires a different approach to that applied to most of the other BGAs. This is because outturn data disaggregated at a country level will not, and indeed cannot be, available for the year prior to the devolution of the UK Aggregates Levy.

Scottish and UK Ministers have therefore agreed that the SAT BGA baseline should be based on year 1 (2026-27) revenues, with a reconciliation in future years to allow for this. This agreement was possible, in part, due to the Scottish Government commitment to align the SAT rate with the UK Aggregates Levy rate in 2026-27.

Rate

We have introduced legislation to set, subject to the approval of the Scottish Parliament, the SAT rate from 01 April 2026 at £2.16 per tonne of taxable aggregate.

Forecast

The forecasts for SAT revenues are set out in Table 2.08:

Table 2.08: SAT Revenue Forecasts 2026-27 to 2030-31

£ million	2026-27	2027-28	2028-29	2029-30	2030-31
Scottish Aggregates Tax	42	43	45	46	48

Non-Domestic Rates (NDR)

NDR, often described as business rates, are a local tax levied on lands and heritages used for non-domestic purposes in the public, private, and third sectors. NDR are administered and collected by local authorities, who ultimately retain all the NDR revenue they raise to help fund the local services they provide. National NDR tax rates and reliefs are confirmed annually by the Scottish Government.

Rates

The amount of tax due is based on the rateable value of the property multiplied by the Basic Property Rate, the Intermediate Property Rate, or the Higher Property Rate, depending on the property’s rateable value, minus any reliefs which the property is in receipt of. The rates are set by Scottish Ministers. Independent Assessors set the rateable value of a non-domestic property, which is generally based on the notional annual rent the property would attract on the open market if vacant and to let. In order to promote consistency in revaluation, all rateable values are effectively benchmarked against the same date – the “tone date”.

Non-domestic properties are periodically revalued to reflect prevailing economic circumstances. The last revaluation took effect on 01 April 2023 with a tone date of 01 April 2022. The next revaluation is scheduled for 01 April 2026 with a tone date of 01 April 2025 and it is the first on the three-year cycle introduced following the recommendations of the independent Barclay Review of Non-Domestic Rates. The purpose of a revaluation is to redistribute the tax base to reflect prevailing property market conditions rather than to increase or decrease the overall revenue raised and the shorter one-year tone date ensures those conditions are more accurately reflected in Scotland than other parts of the UK.

The Scottish Budget delivers a broadly revenue-neutral revaluation in real terms over the course of the revaluation cycle, and therefore decreases the Basic, Intermediate and Higher Property Rates in 2026-27 to reflect overall growth in rateable values at revaluation, whilst offering a generous relief package. As a result of the decisions in the Budget, it is estimated the revenues raised from NDR will be 6 per cent lower in real terms in 2026-27 than pre-COVID and 0.3 per cent lower in real terms than the revenues collected in 2010-11.*

* Real-terms historic Non-Domestic Rates income calculations use the Consumer Prices Index in line with the inflation measure used to baseline forecast annual changes to Non-Domestic Rates.

Table 2.09: Non-Domestic Rates, 2026-27

Basic Property Rate (‘poundage’) (properties with a rateable value up to and including £51,000)	48.1p
Intermediate Property Rate (properties with a rateable value between £51,001 and £100,000)	53.5p
Higher Property Rate (properties with a rateable value above £100,000)	54.8p

Reliefs

This Budget continues to support our businesses and communities with a strong NDR relief package, including maintaining the Small Business Bonus Scheme and the Business Growth Accelerator reliefs, both the most generous of their kind in the UK. It also includes a number of other reliefs, including Day Nursery and Fresh Start reliefs, which do not exist in England.

Small Business Bonus Scheme relief will be maintained at the existing rates and thresholds for the next three years of the revaluation cycle in order to ensure certainty for businesses. This relief lifted 100,000 properties out of rates altogether as of June 2025, and it is estimated that over 100,000 properties will continue to be eligible for Small Business Bonus Scheme relief in 2026-27. Shootings and deer forests will be excluded from eligibility for Small Business Bonus Scheme relief from 01 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.

Payday lenders, advertisements, car parks, and betting shops will remain ineligible for Small Business Bonus Scheme relief. All the property categories which are ineligible for Small Business Bonus Scheme relief will also be ineligible for Fresh Start relief from 01 April 2026.

We are committed to a fair and transparent regulatory and Non-Domestic Rates system, and this is why, from 01 April 2026, those 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.

We will offer a 15 per cent relief in 2026-27, and for the duration of the three-year revaluation cycle, to properties in the retail, hospitality, and leisure sectors which are liable for the Basic or Intermediate Property Rate (those with a rateable value up to and including £100,000), capped at £110,000 per business per year. This is forecast to reduce the Non-Domestic Rates bills of eligible ratepayers by around £36 million in 2026-27 alone.

Recognising the specific challenges faced in island communities, we will extend and expand 100 per cent relief in 2026-27, and for the duration of the three-year revaluation cycle, to properties in the retail, hospitality, and leisure sectors located on islands as defined by the Islands (Scotland) Act 2018, and in three prescribed remote areas (Cape Wrath, Knoydart and Scoraig), capped at £110,000 per business per year.

Taken together, we estimate these sectoral retail, hospitality and leisure reliefs could benefit up to 37,000 properties, subject to the business-level cap.

Acknowledging the impact of the revaluation, we are protecting business by introducing a Revaluation Transitional Relief to protect those most affected by revaluation, and will cap increases in gross bills up to the next revaluation in 2029. Increases in NDR gross liabilities due to revaluation will be capped at 15 per cent (cash terms) in 2026-27 for small properties, rising in subsequent years. This relief will ensure that the gross bills of around 60,000 properties are lower in 2026-27 than they otherwise would have been.

Table 2.10: Year-on-year 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%

We will also introduce Small Business Transitional Relief to ensure that those ratepayers losing, on 01 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.

Under Small Business Transitional Relief, eligible ratepayers will pay 25 per cent of any increase to their net bill in the first year (2026-27), 50 per cent in the second year (2027-28) and 75 per cent in the third year (2028-29). This relief is forecast to save ratepayers around £80 million over the next three years.

To support the attainment of our Net Zero targets, we will introduce 100 per cent relief for eligible Electric Vehicle-charging points for 10 years from 01 April 2026.

In total, NDR reliefs funded by the Scottish Government are forecast to save ratepayers £864 million in 2026-27. NDR reliefs are subject to the domestic subsidy control regime as set out in the Subsidy Control Act 2022.

We will also work with businesses to examine the impact and configuration of all our reliefs in advance of the next revaluation on 01 April 2029.

Forecast tax revenues for NDR from 2025-26 are set out in Table 3.11 below. The NDR Pool is forecast to be in surplus in 2025-26 and we have therefore taken the exceptional decision to allocate £100 million more than previously planned in the NDR Pool. This decision to bring forward some of the forecast growth in NDR receipts from 2027-28 is intended to support continued investment in local government services. We will retain the plan to balance the forecast deficit in future years in a phased manner by 2028-29.

Prior year adjustments in a given year are generally the difference between the Provisional Contributable Amount (PCA) of NDR income for the preceding year, provided by councils at the start of the financial year (this is separate to the NDR income forecast for that year provided by the Scottish Fiscal Commission and featuring in Table 2.11), and the NDR income outturn for the preceding year. The yearly balance in each year is the sum of prior year adjustments for that year, and of the difference between the PCA and the Distributable Amount for that year.

Table 2.11: Scottish Non-Domestic Rates Revenue Forecasts 2025-26 to 2030-31

£ million	2025-26	2026-27	2027-28	2028-29	2029-30	2030-31
Non-Domestic Rates	3,097	3,387	3,396	3,464	3,867	3,811
Distributable Amount	3,114	3,474	3,266	3,434	3,867	3,811
Prior Year Adjustments	-132	-174	0	0	0	0
Yearly Balance	25	-261	130	30	0	0
Cumulative Balance	102	-160	-30	0	0	0

Council Tax

Council Tax is a local tax, with receipts retained by local government and separate from the Scottish Budget. It makes a significant contribution to the funding of public services. Council Tax comprises both property and personal elements. A charge is based on the value of property band; and discounts, exemptions, and reductions to reflect property characteristics or personal circumstances. The primary means of support is the Council Tax Reduction scheme which reduces liabilities for over 450,000 households according to their need and ability to pay.

The Scottish Government is committed to working in partnership with local government on Council Tax policy decisions, and we continue to engage closely with COSLA and local authorities. We are currently undertaking a joint programme of engagement with COSLA and other stakeholders to consider the future of Council Tax, with the aim of building evidence and understanding around potential reforms to the whole system. This work recognises the importance of consensus, stability, and fairness, and is intended to inform decisions in the next parliament on whether, and how, broad reform should proceed.

Alongside this engagement, and operating within the existing Council Tax framework, the Scottish Government will introduce new high value Council Tax bands for the most expensive residential properties from 01 April 2028. Two new bands will be created above the current highest band:

• Band I for properties valued between £1 million and £2 million; and
• Band J for properties valued above £2 million.

These bands will be based on up-to-date values for those properties only, with all other homes remaining on the existing Council Tax valuation framework.

This is a targeted change, with fewer than one per cent of households affected, and seeks to ensure that those with the broadest shoulders contribute more, by requiring the highest value properties to pay higher charges.

As this policy is developed, the Scottish Government will, in partnership with local government, consider the evidence and views emerging from the ongoing programme of engagement, including the current consultation on the future of Council Tax. This will include exploring appropriate safeguards and mitigations, such as deferral arrangements and the potential expansion or adaptation of the Council Tax Reduction scheme, to ensure that affordability is protected and the approach remains fair, proportionate, and deliverable.

In addition, we intend to lay regulations later this month which, subject to Parliamentary approval, will remove the existing legislative cap on Council Tax premiums. If agreed, this would meet our Programme for Government 2025 commitment and enable local authorities to determine the level of Council Tax premium that applies from 01 April 2026 to second homes and long-term empty homes, reflecting local housing pressures and circumstances.

Air Departure Tax (ADT)

The Air Departure Tax (Scotland) Act was passed by the Scottish Parliament in 2017. However, the implementation of ADT has been deferred since then due to concerns over whether the current Highlands and Islands exemption for the UK-wide Air Passenger Duty (APD) – and any equivalent exemption within a devolved ADT - complies with the UK Government’s Subsidy Control regime.

The Scottish Government has consistently reaffirmed its commitment to introducing ADT in a manner that protects the vital air links for our Highland and Island communities while complying with the legal parameters of the Subsidy Control regime.

In line with this commitment, we have developed proposals for a new Highlands and Islands exemption that will allow us to move forward and implement ADT in Scotland. A consultation will launch by the end of January 2026 on the proposed new exemption, and will be accompanied by a programme of engagement with the aviation industry and the communities and businesses that the exemption is designed to serve.

A solution for the Highlands and Islands exemption overcomes the main barrier to the introduction of ADT. ADT will, therefore, become operational on 01 April 2027. From that date, the existing UK-wide APD will cease to apply to the carriage of passengers by air from Scottish airports.

To provide certainty and stability for industry and taxpayers, we will match the UK Government’s APD rates and bands for 2027-28. Rates and bands for 2028-29 will be set out in the 2027-28 Scottish Budget and developed in line with the Scottish Government’s high-level principles for ADT.^[2]

As a result, in line with the principle that higher rates of tax should be paid by those who choose to travel on private jets, which produce significantly more emissions per head than commercial flights, we will bring forward a Private Jet Supplement within ADT in 2028-29, and engage with the UK Government to seek further devolution to allow private jet ‘ghost flights’ to be addressed.

VAT Assignment

The Scotland Act 2016 allows for the first ten pence of standard rate VAT receipts and the first 2.5 pence of reduced rate VAT receipts raised in Scotland to be assigned to the Scottish Government (known as VAT assignment). As VAT receipts for Scotland are not identifiable from tax returns, assigned VAT will be based on a model of expenditure in Scotland.

The 2023 Fiscal Framework Agreement with the UK Government outlines that further work is required by UK and Scottish Governments to mitigate the risks of VAT Assignment implementation.

We note the comments from the House of Commons Scottish Affairs Committee and the Scottish Parliament Finance and Public Administration Committee on the risks and challenges regarding the implementation of VAT Assignment. The Scottish Government continues to acknowledge the uncertainties and complexities that the proposed assignment methodology could bring to the Scottish Budget, and will ensure these issues are fully covered in further discussions with the UK Government.

Building Safety Levy (BSL)

The Scottish Government introduced the Building Safety Levy (Scotland) Bill to the Scottish Parliament on 05 June 2025.

The Bill will establish a BSL in Scotland, equivalent to the Levy that the UK Government intends to introduce in England. The Scottish BSL will provide vital revenues to support the funding of the Scottish Government’s Cladding Remediation Programme.

The Levy will commence on 01 April 2028. To provide industry with advance certainty, the Scottish Government intends to publish Levy rates in June 2026, 22 months in advance of the commencement of the Levy.

New Taxes and Future Priorities

Scotland’s Tax Strategy underlined that the principles of efficiency and effectiveness are paramount to ensuring that the Scottish tax system is fit for purpose and provides a high standard of service for Scottish taxpayers.

In support of this work on future reform of the Scottish tax system, the Scottish Government is committed to considering options for a Carbon Land Tax, as part of exploring regulatory and fiscal changes that could be made to further support land reform and reduce greenhouse gas emissions from land. The Scottish Government is working with the Scottish Land Commission (SLC) to consult with a range of stakeholders and to develop the evidence necessary to identify and assess options for future taxation in this area. The SLC has published an interim report^[3] setting out the progress of work so far and next steps.

The Scottish Government has also committed to examining the balance of taxes across labour, income, and wealth in the context of our devolved powers. There is increasing international debate on balancing labour taxation with other forms of income and wealth, including land and property taxation, to develop tax systems that are more resilient and provide a broader set of fiscal tools to respond to economic shocks and future fiscal challenges. To support this discussion, we will explore what wealth taxation could look like for Scotland, understanding the opportunities and challenges that this may offer our tax system, and the steps that would be needed to progress options.