Income tax changes and mansion tax on £1m homes in Scottish Budget

The Scottish government has announced plans to change income tax thresholds as part of its Budget for 2026-27.

Finance Secretary Shona Robison said the proposals would mean that 55% of Scottish taxpayers would pay less income tax next year than people living in the rest of the UK.

Robison also announced a new tax on homes worth more than £1m and an increase in the Scottish Child Payment.

While opposition MSPs welcomed some measures, they warned the Budget would not deliver wide-ranging reforms.

The £68bn Budget, which sets out plans for the next financial year and beyond, comes just four months before Scots head to the polls for the Holyrood elections.

While Robison said the tax and spending proposals would ensure “pressure on families and family budgets will ease”, economists said they also contained considerable cuts.

Currently, people in Scotland earning less than about £30,000 pay slightly less income tax than elsewhere in the UK, but people earning more than that face progressively higher taxation.

The point at which people start paying income tax is determined by the UK government.

Above that the Scottish government has three lower rates – starter, basic and intermediate.

Robison said she would raise the threshold of the basic and intermediate rates, meaning people will pay the lower 19% starter rate on more of their earnings.

The threshold for the basic (20%) rate, currently £15,398, will go up by 7.4% to £16,537.

The intermediate rate (21%), which currently starts at £27,492, will rise to £29,527.

However, the higher rate (42%) will continue to kick in at £43,663, and the advanced (45%) and top (48%) rates will also remain unchanged – meaning bigger earners will be dragged into higher bands as their wages increase.

Under the proposals, Scots earning more then £33,500 would pay slightly less income tax than elsewhere in the UK.

Robison said the changes would mean that 55% of people would pay less in tax than they would in the rest of the UK.

That projection is based on salary forecasts. In two of the past three financial years the Scottish government made similar claims, only for questions about their accuracy to be raised after lower than forecast median income figures.

Robison also told parliament that two new council tax bands will be introduced from April 2028 for homes with an up-to-date valuation of more than £1m.

She said the move would bring “greater fairness as well as increased revenues to councils”.

Public Finance Minister Ivan McKee told BBC Radio Scotland Drivetime that the measure would generate about £14m in revenue.

While the Scottish government sets the overall structure of council tax, rates are set, administered and spent by local authorities.

Robison’s announcement comes after the UK government announced plans for a “mansion tax” on properties in England valued at more than £2m.

Robison also announced:

• The Scottish Child Payment will be increased to £40 a week for families with a baby under the age of one from 2027-28
• There will be a 15% non-domestic rates relief in 2026-27, worth £138m over three years for retail, hospitality and leisure premises
• Investment in roads and public transport, including on the rail network, the ferry fleet and nearly £200m for the dualling of the A9 and key sections of A96
• £1.5bn in efficiency savings via public sector reform
• The expansion of after school clubs and breakfast clubs for every primary school by August 2027
• A “Summer of Sport”, including free children’s sport and swimming lessons for every primary school pupil
• An air departure tax on all eligible passengers, with the Highlands and Islands to be exempted. A private jet tax is to be levied through this new tax
• £22.5bn for health and social care, including funding to begin the national rollout of walk-in GP clinics
• An extra £70m for universities and colleges

During her speech, Robison said: “To deliver even more for those with the least, we will ask those with the most, the very wealthiest in our land, to contribute that little bit more.”

She told MSPs: “This is a budget for a stronger NHS, a budget for a more prosperous Scotland, a budget that once again gives the people of Scotland the best cost-of-living deal anywhere in the UK.”

The Scottish Fiscal Commission says the income tax changes will generate £72m in 2027-28 and about £200m from 2028-29.

Joao Sousa, deputy director of the Fraser of Allander Institute, said the government was actually cutting day-to-day spending by £480m compared to financial plans announced in June.

He said this was largely due to much weaker underlying tax forecasts from the Scottish Fiscal Commission.

The government has also cut its capital budget – used for long-term infrastructure projects – by £850m, according to Sousa.

Scottish Conservative finance spokesman Craig Hoy welcomed the freezes to lower tax thresholds but said it did “nothing” for middle earners.

He also urged the government to go further in rates relief for businesses.

Hoy said the Budget “prioritises welfare over work with £650m extra being spent in the social justice portfolio”.

He added: “This SNP government remains high on tax and low on delivery.”

Labour finance spokesman Michael Marra said the government’s proposals would not deliver “real change”.

“They want to pretend on their own abysmal record, in reality they have decimated Scotland’s finances and brought our services to their knees.”

The Scottish Greens, who had called for a “mansion tax”, also welcomed an increase to wraparound care for children and support for workers affected by the closure of the Exxon Mobil plant at Mossmorran.

However, co-leader Gillian Mackay said she was “disappointed” that rules on free childcare eligibility had not been changed.

Liberal Democrat finance spokesman Jamie Greene welcomed business rates relief but called on more to be done to help struggling companies.

The Scottish government will table its plans in a budget bill later this week.

MSPs will begin debating the proposals early next month. A final vote on whether to pass the bill into law is scheduled for 25 February.

The government would need the votes of five other MSPs to get to a true majority of 65 – or they could try to reduce the numbers on the other side by convincing MSPs to abstain.

Last year, the Budget was passed with the support of Green and Liberal Democrat MSPs, who negotiated concessions with the government.

Labour have said they will not make the Budget fall – though they could still vote against it if the SNP have already agreed a deal with the Greens or LibDems.

Sarwar said he was focused instead on ensuring a new administration was in place following May’s Holyrood election.

If that is the case, the new government could make some changes to spending plans in an emergency budget.

However, it would be unable to change some major announcements, such as those on income tax, until the next financial year.