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 55% of Scottish taxpayers would pay less income tax than people living in the rest of the UK in the next financial year.

Robison also announced plans for a tax hike 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 proposals 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.

The result is Scots earning less than £33,500 will pay slightly less income tax than they would elsewhere in the UK, to a maximum of £40 a year.

Yet those earning more than £33,500 will pay increasingly more. For example, someone earning £50,000 will pay almost £1,500 more than they would south of the border.

The government aims to ensure that most Scottish taxpayers pay less income tax than they would elsewhere in the UK.

But Robison’s prediction that 55% of Scots will be better off is based on salary forecasts for the coming financial year. This means that at the end of the year, the government’s ambitions may not match up to the reality - with such questions raised in two of the last three financial years.

Robison also announced:

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.