Tax Code changes in the Scottish Budget

Tax Code changes in the Scottish Budget

The finance minister for the Scottish government, has set out her tax and spending plans for Scotland for 2025-26 with a commitment to a 3.5% rise in the two key tax thresholds, affecting the majority of taxpayers.

The Scottish government advised that the decision to increase thresholds was taken to offset the impact of the UK wide increase in employer’s national insurance contributions (NICs) from next April, which the Institute of Fiscal Studies (IFS) expects will hit employers directly as businesses pass on costs to staff and customers.

From 6 April 2025, earners on the two lowest tax thresholds will see a standard increase of 3.5%, nearly twice the current rate of inflation.

Delivering the Budget to the Scottish parliament, the finance minister told MSPs: ‘Scottish taxes will raise £20.4bn in 2025-26 – £775m more than forecast. This is due to average earnings in Scotland growing faster than in the rest of UK. And £1.7bn more tax will be delivered in 2025-26 than if Scotland followed UK tax system.

‘So may I thank those with the broadest shoulders who have supported our health service and our social programmes’.

‘The increase in employers’ national insurance is estimated to take more than £2bn out of the Scottish economy next year, so I will not introduce any new bands or rates during this parliament’.

‘I have decided to provide tax support for low and middle earners. Basic and intermediate thresholds will increase by 3.5% – that means more of people’s money will be taxed at the starter and base rate’.

‘This will remain true until at least the end of this parliament [May 2026], with no further changes, including for higher and additional rate taxpayers.’

The intermediate 21% rate covers incomes from £27,492 to £43,662. This means higher rate tax at 42% will kick in at £43,663.

Basic rate tax at 20% will be paid on earnings between £15,398 and £27,491.

Scottish government figures predict that anyone in Scotland earning around £30,300 will pay slightly less income tax than their counterparts in the rest of the UK in tax year 2025-26.

However, it is not all good news – second home owners and buy to let landlords, will see an increase in the additional dwelling supplement rate, which will increase from 6% to 8% from 5 December 2024. This is expected to raise an extra £32m in 2025-26.

The finance minister also announced plans to end the two-child benefit cap in Scotland from 2026, and is quoted as saying…

‘The two-child cap has caused misery for families and children in Scotland, just as with pension age winter payments, we will mitigate the two-child cap’.