Lower and middle earners get a Scottish Budget boost but wealthy homeowners hit

Lower and middle earners in Scotland will indeed pay less income tax than their counterparts in other parts of the UK. However, financial experts are warning that higher-rate taxpayers north of the border will be disappointed that their threshold has again been left unchanged.

Announcing the income tax threshold changes, Cabinet Secretary for Finance and Local Government of Scotland Shona Robison said: “I can confirm while others will remain frozen, the thresholds for the basic and intermediate rates will be increased by 7.4 per cent, which is twice the rate of inflation.”

She added that 55 per cent of Scots are set to pay less income tax because they live in Scotland.

As a result of changes in the Scottish Budget, the basic 20 per cent rate threshold will increase 7.4 per cent to £16,537 from £15,398. The intermediate rate (21 per cent) threshold will go up to £29,527 from £27,492.

Neil Winstanley, Edinburgh-based chartered financial planner at Quilter Cheviot, said: “The decision to increase the basic and intermediate rate thresholds will be welcomed by lower and middle-income earners and allows the Scottish Government to continue to use its message that many people pay less tax than they would elsewhere in the UK. It is also a politically easier move than raising the higher-rate threshold, particularly in the run-up to an election.”

But he added that it does little to address the growing number of public sector workers, including nurses, teachers and police officers, who are now being pulled into the 42 per cent higher rate. “These are not the ‘broadest shoulders’ traditionally associated with higher-rate tax, yet fiscal drag continues to push more ordinary earners into this bracket,” he explained.

Winstanley said: "Higher-rate taxpayers are therefore likely to be disappointed that their threshold has again been left unchanged and now lags the rest of the UK by around £7,000. For someone earning £50,000, that difference equates to roughly £1,500 a year in extra tax, a gap that is becoming increasingly hard to ignore and risks undermining Scotland’s competitiveness for skilled workers over time.”

Sean Cockburn, partner at Forvis Mazars, said the claim that 55 per cent of Scots would pay less tax than their counterparts south of the border needs to be put into perspective, with the absolute maximum benefit still being less than £40 per year (or 76p per week), with many taxpayers being no better off.

He added: “For those earning more than £33,494, they will pay more than their southern peers, increasing as income levels rise and with a particular pain point for workers earning above £43,663, when Scottish taxpayers are suffering the Scottish higher rate of 42 per cent whilst still paying National Insurance Contributions at 8 per cent to £50,271.”

Stuart Walker, Chartered Financial Planner with Johnston Carmichael Wealth, said the income tax changes seem to be minimal. He added that they “provide the Scottish Government with good sound bites around a higher number of people paying less tax in Scotland than perhaps encouraging aspiration and progression.”

How the ‘mansion tax’ will impact you

From April 2028, two new council tax bands will be introduced for the most expensive properties in Scotland - those worth more than £1 million based on an up-to-date valuation.

The majority of homeowners across Scotland won’t be affected by what is being billed as a “mansion tax” as only 391 properties were sold for more than £1m in 2024-25, according to the Register of Scotland. But it will be most felt in Edinburgh where more than half of those houses changed hands.

Savills head of residential research, Faisal Choudhry, commented: “The Budget has provided clarity, enabling buyers and sellers to move forward with confidence into the forthcoming spring selling season. Buyers will be relieved that Land and Buildings Transaction Tax (LBTT) rates will remain unchanged in the coming tax year, following last year’s increase to the Additional Dwelling Supplement.

“However, the introduction of two new high‑value council tax bands for properties above £1 million from 2028 will affect 0.4 per cent of Scottish housing stock, according to Savills research.”

He added: “Today’s announcement may support a short‑term uplift in market activity, particularly given the two‑year breathing space before the new council tax bands are implemented and the valuation exercise is completed. Over the longer term, the changes could create stronger incentives for older homeowners to downsize, while some heavily mortgaged owners of high‑value homes may also consider moving to lower‑value properties. This has the potential to push demand outward into surrounding areas.”

Choudry noted that the changes are likely to have a disproportionate impact on second‑home markets, which are already contending with the LBTT surcharge and, in many cases, the doubling of council tax.

Walker said: “The mansion tax as it’s known, feels more like the start of something rather than a big tax raiser given the small number of Scottish houses that are over £1m. In terms of wider council tax rises, asking councils to be sensible when it comes to future rate setting doesn’t instil a lot of confidence about what this might mean for people in practice.”