Scottish Budget 2025-26

The draft Budget includes changes to the starter and basic rate income tax bands and a reduction to the additional dwellings supplement. 

As Scotland has a minority Government, some of these proposals may be amended before being adopted.  

Income tax bands 

Support for low and medium earners  

The Scottish basic and intermediate tax rate bands will be increased by 3.5%. These changes will result in more earnings being taxed at a lower rate than under the current system. However, this will only result in a slight benefit for lower and medium earners. 

The thresholds for the higher, advanced and top tax bands will be frozen until the end of this Parliament (2026/27). The personal allowance of £12,571 will also remain frozen. 

Proposed Income Tax rates and bands 

	2024/25		2025/26
	Band	Rate	Band	Rate
Starter	£12,571* - £14,876	19%	£12,571*- £15,397	19%
Basic	£14,877 - £26,561	20%	£15,398 - £27,491	20%
Intermediate	£26,562 - £43,662	21%	£27,492 - £43,662	21%
Higher	£43,663 - £75,000	42%	£43,663 - £75,000	42%
Advanced	£75,001 - £125,140*	45%	£75,001 - £125,140**	45%
Top	Over £125,140	48%	Over £125,140	48%

*Assumes individuals are in receipt of the standard Personal Allowance. 

**Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000. 

Land and Buildings Transaction Tax (LBTT)

The Additional Dwellings Supplement (ADS) rate will increase from 6% to 8% from 5th December 2024. This is the additional charge added to LBTT if you buy an additional residential property in Scotland. 

Transitional provisions apply where, for example, the effective date of a land transaction is on or before 5th December 2024 and the contract was entered into on or before 4th December 2024. 

More details regarding the provisional arrangements may be found here.  

Non-domestic rates (business rates) 

Small Business Bonus Scheme 

With hospitality businesses struggling as a result of staff shortages, high energy prices and National Insurance hikes, the Small Business Bonus Scheme will be protected. The Small Business Bonus Scheme means certain properties can get up to 100% non-domestic rates relief. 

Relief for hospitality premises 

There will be continued support in 2025/26 for hospitality businesses (including Grassroots Music Venues with capacity up to 1,500) liable for Basic Property Rate through 40% non-domestic rates relief, capped at £110,000 per business. 

For the Highlands and Islands, non-domestic property relief for hospitality businesses (including Grassroots Music Venues with capacity up to 1,500) will continue to be 100%, capped at £110,000 per business. 

Basic Property Rate 

The Basic Property Rate has been frozen at 49.8p for properties with a rateable value up to and including £51,000. The other rates will increase by inflation, with the intermediate property rate increasing to 55.4p and the higher property rate increasing to 56.8p. 

The Federation of Small Businesses (FSB) in Scotland has welcomed the extension of business rates relief to most of Scotland’s hospitality sector but condemned the failure to include small retail and leisure businesses as “a bitter pill to swallow.” 

FSB Scotland policy chair, Andrew McRae, said: “We welcome the extension of 40% rates relief to the majority of Scottish hospitality venues, who have borne the brunt of the pressures on small businesses in recent years. They continue to be squeezed hard by sharply rising costs and customers cautious about spending amidst ongoing economic challenges. 

“We are also pleased the lifeline Small Business Bonus Scheme has been protected and will continue to offer vital support to tens of thousands of small businesses up and down the country. The freezing of the basic property rate, or ‘poundage’, is also welcome. 

“However, the refusal to extend the same rates relief to our small retailers and leisure providers is a bitter pill to swallow. 

Keep up to date with future announcements 

Members of the Scottish Parliament will vote on the Budget bill in February 2025 and whether the items proposed in this Budget will be passed remains to be seen. You can get further detail on the Scottish Government’s proposals here. 

Stay up to date with the latest Government announcements affecting you and your business by signing up to our newsletter here.   

Last updated 5 Dec 2024 | First published 5 Dec 2024

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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