Fiscal sustainability delivery plan

Pillar 3: Ensuring a strategic approach to tax revenues which considers the longer-term impact of our tax choices and competitiveness

Measures

• Priorities to improve the operation and performance of the existing tax system.
• Future tax reform to deliver sustainable and growing tax revenues.

Key Actions

• Maintaining and protecting our progressive approach to taxation.
• Working in partnership with Local Government to ensure local taxes are fair and sustainable.
• Implementing new devolved taxes.
• Expanding the evidence base for Scottish Income Tax.
• Reviewing the operation of existing taxes.
• Strengthening our approach to Scottish tax compliance.

The Scottish Government’s approach to Income Tax policy has been particularly important in supporting fiscal sustainability, with decisions since devolution estimated to have raised up to £1.7 billion in 2025-26 when compared to if we had implemented the same rates and bands as in the rest of the UK. By 2029-30 the SFC forecasts the total tax net position to be £2.3 billion.^[29]

The Scottish Government operates within a complex tax framework, with powers split between the UK Government, the Scottish Government, and Local Government. UK-level decisions significantly influence Scottish finances and economic priorities while local authorities also play a role in setting and administering local taxes. Managing this layered system requires a long-term perspective on tax impacts across all levels. Uncertainties around revenue, forecast error and potential reconciliations add to the financial risks that must be managed.

It is within this context that the Scottish Government published ‘Scotland’s Tax Strategy: Building on our Tax Principles’^[30] (the Tax Strategy), alongside the 2025-26 Scottish Budget. The Tax Strategy delivers on the third pillar of the fiscal sustainability set out in the MTFS and sets out a range of priorities that will underpin this government’s approach to developing tax policy, ensuring the tax system raises the revenue needed to achieve our priorities, and supports our growing economy.

Pillar 3 measures and actions are as follows:

Priorities to improve the operation and performance of the existing tax system.

The following actions underpin this approach:

• Continuing to work in partnership with Local Government, to ensure that local taxes are fair and sustainable and to explore the creation of more revenue-generating powers for local authorities, with the Visitor Levy (Scotland) Act already having given Local Government their most significant new tax power since devolution. We will work towards a Scottish Parliament debate in early 2026 to lay the groundwork for reform proposals in the next parliamentary term.
• Implementing new devolved taxes:
  • The Building Safety Levy (Scotland) Bill was introduced on 5 June 2025, and the Levy is intended to come into force on 1 April 2027.
  • Scottish Aggregates Tax will replace the UK Aggregates Levy in Scotland and come into force on 1 April 2026.
  • High-level principles to help shape development of Air Departure Tax policy have been published alongside the 2025 MTFS.
• Expanding the evidence base for Scottish Income Tax, which includes publishing research later in 2025 on how the tax environment affects the competitiveness of the Scottish economy. In the coming years, Income Tax outturn data for the 2023-24 and 2024-25 tax years will become available and we will work in collaboration with HM Revenue and Customs (HMRC) to evaluate the impact of policy changes to Scottish Income Tax made in these years. This will help us understand how these changes have affected the Scottish tax base and whether they achieved their stated policy goals at the time of introduction, providing additional evidence to inform future policy decisions on Income Tax.
• Reviewing the operation of existing taxes, including:
  • A comprehensive programme of engagement with an objective to build consensus for a coherent option for meaningful and long-term reform of Council Tax. The insights gathered from this work will inform a Scottish Parliament debate scheduled for early 2026, laying the groundwork for reform proposals in the next parliamentary term.
  • Conducting, over the remainder of this Parliament, a review of Land and Buildings Transactions Tax (LBTT), to support an evaluation of key aspects of the tax legislation.
  • Commissioning independent research on the effectiveness of the lower rate of Scottish Landfill Tax (SLfT) in supporting circular economy and waste objectives.
• Promoting the “Areas of Research Interest”, working with the academic community and other stakeholders engaged on tax issues, to ensure that our policy and analytical priorities are aligned over the medium term. This work will lead to strengthened connections between policy makers and researchers across Scotland and beyond.
• Strengthen our approach to Scottish tax compliance, in collaboration with HMRC and Revenue Scotland and working with tax administrators to streamline and ensure efficient tax collection mechanisms. This will include:
  • Working in partnership with HMRC through the joint Compliance Working Group to explore future improvements in Scottish Income Tax compliance, which takes account of our progressive tax system.
  • Working in partnership with Revenue Scotland to deliver Scottish Aggregates Tax and Scottish Building Safety Levy through the use of data and operational insights.
  • As part of Revenue Scotland’s Digital Strategy, working to ensure a single end-to-end digital journey for taxpayers and their agents. This includes improving data standards, quality and supporting greater connectivity with other systems and services.

Future tax reform. Through the following actions we will explore the opportunities for reform and devolution of tax powers needed to continue to deliver sustainable and growing tax revenues in the future including:

• Consolidating our evidence on the operation of the overall suite of Scottish taxes relating to key issues such as fiscal sustainability and risk. This will help us to further develop our approach to managing tax performance, mitigating potential risks and exploring future tax policy options, including the long-term development of Scottish Income Tax.
• On reserved tax powers, we will publish an analysis of the fiscal sustainability of Scottish taxes, and opportunities for further reform and devolution, in early 2026.
• To frame a well-informed and broad discussion on taxing wealth, we will publish a literature review of wealth taxation, and we will undertake extensive engagement with experts and stakeholders on how this learning could be applied in a Scottish context, in the next parliamentary term and beyond.
• Working with and learning from other countries, to better understand different devolved arrangements internationally as well as the potential role for the devolved tax system to encourage positive behavioural change and how transitory tax revenues are balanced and managed within tax systems.