The Scottish Government announced in their budget two changes to income tax. Here’s what you need to know and how it could affect you. 

What’s changing? 

• Thresholds for the basic and intermediate rates will rise by 7.4%, significantly higher than inflation. 
• Figures released by the Scottish Government note that more than 55% of Scottish taxpayers will pay less income tax than they would in England and Wales.   
• The tax bands for other tax rates are frozen.  This is an effective tax increase for those with income over £43,662.  

The headlines accompanying the changes coming into effect from 6 April 2026 is that the increases to the basic and intermediate rates will ease the burden on lower earners while maintaining higher contributions from top earners. However, looking at the numbers, the financial upside from the changes for lower earners is extremely limited.   

Historically, the Scottish Government has highlighted that most taxpayers in Scotland pay less income tax than elsewhere in the UK. In reality, the headline figures include the 33% of Scottish taxpayers that pay no tax. Only 22% of Scottish taxpayers will actually pay less over to HMRC than if they lived south of the border. In addition, those savings have often been modest - often just tens of pounds a year. The maximum a Scottish taxpayer will save with the changes announced in the 2026/27 Scottish budget is £40.     

Meanwhile, middle earners such as teachers and police officers have faced significantly higher bills, often running into thousands of pounds more than their counterparts in the rest of the UK. This is because of Scotland's intermediate rate of 21% - which kicks in in Scotland at £29,527, whereas other UK taxpayers pay 20%. Those earning over £43,662 are even worse off as that’s the income level at which the Scottish higher rate kicks in (42%), whereas for other UK tax payers the rate is 2% lower (at 40%) but also kicks in later at £50,271. It means in Scotland those earning between £43,662 and £50,271 are paying a total of 50% (income tax and national insurance), versus their counterparts in the rest of the UK who pay 28% on their salary in this bracket.   

For higher earners, those earning in excess of £75,000 in Scotland there is again a step change in the income tax rates to 45% versus those south of the border are still paying tax at 40% on income up to £125,140. For the additional rate taxpayers (those earning over £125,140) the differential continues with Scottish taxpayers stumping up 48% on income in excess of £125,140 and their English counterparts 45%. All in all the cumulative impact of the higher rates is significant and can impact on Scottish businesses looking to attract talent north of the border.   

For landowners renting out property, the Scottish Government will now also have the powers to set the rates for Scottish taxpayers. Despite the UK Government announcing in the UK budget in November that that tax rates for property income will increase by 2% across the income tax bands from April 2027, Scottish Government made no such announcement on rates north of the border. 

Tax rates on investment income, such as interest on savings, continues to be set by the UK Government. UK Government announced in November that these rates will generally rise by 2% - from April 2026 in the case of dividends and April 2027 for interest and so these changes will impact taxpayers across the UK. 

In summary from a Scottish income tax perspective, the announcements made in the Scottish budget mean: 

• Lower earners see a small improvement from the above inflation increase to the basic and intermediate tax bands, albeit savings are £40 per annum. 
• Middle earners remain squeezed, with little relief and continued disparity compared to the rest of the UK, at points significant disparity given the earlier stages at which higher rates of income tax kick in in Scotland. 
• Higher earners continue to be considerably worse off to their rest of UK counterparts. 

How do the income tax rates compare across the UK? 

Here’s a snapshot of the proposed Scottish rates versus the rest of the UK: 

*Your personal allowance is restricted once you have taxable income of over £100,000. 

What do the changes mean for me? 

Our analysis shows that if you earn above £33,500, you will pay more tax in Scotland. However at circa £44,000 of earnings the tax differential starts to become quite significant as Scottish taxpayers are suffering 50% income tax and national insurance versus 30% in the rest of the UK.   

• At £50,000, a Scottish taxpayer is paying £1,496 more than south of the border.   
• At £60,000, the pressure intensifies as child benefit is withdrawn, adding to the financial squeeze for families. 

Impact at a glance 

While the changes offer minimal relief for lower earners, the gap for middle earners remains stark. For many professionals, the Scottish tax system continues to mean thousands more in tax each year, with limited signs of change. 

For more information on the Scottish Budget 2026, visit our Budget Hub.