The Scottish Budget for the 2026–27 tax year has introduced a series of income tax adjustments aimed at reshaping how taxpayers in Scotland contribute relative to those elsewhere in the UK.
With income tax thresholds rising, but a freeze on higher bands, the changes produce a mixed picture modest relief for many lower and middle earners, but continued pressure for others. This guide explains the changes clearly for a UK audience.
What Are the Key Income Tax Changes in the Scottish Budget 2026–27?
The Scottish Government has confirmed that income tax rates themselves will not change, but the thresholds at which these rates begin will be adjusted. Specifically, the Starter, Basic and Intermediate rate bands are set to rise by around 7.4% for 2026–27, while the Higher, Advanced and Top rate bands remain frozen.
These adjustments are designed to provide some tax relief to lower and mid‑range earners by reducing the portion of income subject to tax at lower rates, while maintaining the same tax level at higher incomes.
How Have the Scottish Income Tax Bands and Thresholds Shifted for 2026–27?
Here’s how the main income tax bands change for the 2026–27 tax year (assuming standard Personal Allowance applies):
| Tax Band | 2025–26 Threshold | 2026–27 Threshold | Rate |
| Starter | £12,571 – £15,397 | £12,571 – £16,537 | 19% |
| Basic | £15,398 – £27,491 | £16,538 – £29,526 | 20% |
| Intermediate | £27,492 – £43,662 | £29,527 – £43,662 | 21% |
| Higher | £43,663 – £75,000 | £43,663 – £75,000 | 42% |
| Advanced | £75,001 – £125,140 | £75,001 – £125,140 | 45% |
| Top | Over £125,140 | Over £125,140 | 48% |
Notably:
- Only the lower bands move upward, offering modest relief to many taxpayers.
- Higher and above bands don’t change, meaning that inflation and wage growth can push more taxpayers into those higher‑taxed brackets.
Who Will Pay More Under the New Scottish Income Tax Rules?
Although many taxpayers will see some reduction in their income tax bill relative to the previous year, not everyone gains:
- Middle and higher earners particularly those above the Intermediate rate may effectively pay more compared with their counterparts in the rest of the UK, because the higher bands remain frozen. This means more income is taxed at higher rates over time due to inflation and wage growth.
- Critics argue that in real terms (after inflation), the tax changes could act as a tax increase for many, since thresholds for higher rates are not rising and fiscal drag pushes earnings into more heavily taxed brackets.
Who Stands to Pay Less or Benefit From the New Tax Adjustments?
The Scottish Government claims that around 55% of taxpayers will pay less income tax than they would if they were taxed under the rest of the UK’s income tax structure. This benefit primarily comes from the increased thresholds for the Starter, Basic and Intermediate rates.
For many lower and middle‑income earners, this change can mean up to about £30–£40 per year in reduced tax liability a modest saving that can matter over a full tax year.
How Do These Changes Compare to the Rest of the UK’s Tax System?
The Scottish system already differs from the UK system because Scotland sets its own bands for income tax, while the UK Government sets bands and rates for savings and dividend income.
Compared with similar UK thresholds:
- The increased thresholds in Scotland mean more income is taxed at lower rates for over half of taxpayers.
- However, the higher and top rates being frozen could mean Scottish taxpayers eventually pay more as their incomes rise relative to thresholds a divergence greater than in UK‑wide tax.
What Does the Scottish Government Say About Fairness and Progressivity?
Scottish Finance Secretary Shona Robison framed the budget as supportive of families and fairness with targeted tax relief and continued funding for public services such as health and education.
Officials argue that by allowing more income to be taxed at lower rates for many taxpayers, Scotland can claim a progressive tax advantage compared to the rest of the UK for the majority of people.
How Will These Income Tax Changes Affect Scottish Households Practically?
For most working households:
- Slight reductions in income tax bills compared to the previous yea though modest in absolute terms.
- Households on higher incomes may not feel much benefit if their earnings cross into higher bands that remain frozen.
- Overall disposable income may be marginally better for many but can be offset by rising costs elsewhere such as council tax adjustments.
Are There Any Other Tax Measures in the Budget That Impact Individuals?
Yes, alongside income tax, the Scottish Budget includes:
- Introduction of new council tax bands on high‑value properties (similar to a mansion tax) from 2028.
- Proposals for new levies such as private jet taxes and future air departure taxes that primarily affect wealthier individuals.
- Increases to Scottish Child Payment and business rate reliefs that indirectly affect household finances.
What Do the Experts and Forecasts Say About the Long‑Term Impacts?
Analysts and think tanks note that while the small increase to income tax bands appears helpful, its real‑term impact is limited. Because many higher thresholds remain frozen, more people could be pulled into higher tax brackets over time due to inflation a phenomenon known as fiscal drag.
Some forecasts also caution that the assumption around who pays less than the UK depends on wage growth and economic conditions; if earnings rise faster than expected, even more taxpayers may end up paying more than their UK counterparts.
What Should Taxpayers in Scotland Know Going Into 2026–27?
- Most taxpayers will see slightly lower income tax bills compared to 2025–26 due to threshold increases.
- Middle to higher earners need to plan for possible higher effective tax burdens due to frozen higher bands.
- Other tax changes, including council tax reforms and new levies, may also affect overall household finances.
Comparison of Scottish Income Tax Bands 2025–26 vs 2026–27
| Band | 2025–26 | 2026–27 |
| Starter | £12,571 – £15,397 | £12,571 – £16,537 |
| Basic | £15,398 – £27,491 | £16,538 – £29,526 |
| Intermediate | £27,492 – £43,662 | £29,527 – £43,662 |
| Higher | £43,663 – £75,000 | £43,663 – £75,000 |
| Advanced | £75,001 – £125,140 | £75,001 – £125,140 |
| Top | Over £125,140 | Over £125,140 |
Source: Scottish Government and tax analysis publications
What Real‑Life Examples Show the Impact of These Tax Changes?
- Lower‑income earner (£20,000): could save around £30–£40 annually due to higher thresholds.
- Median earner: may notice small net gains compared with UK tax, depending on wage projections.
- High‑income earner (£100,000+) : may pay more overall in real terms as more income falls into frozen higher bands.
Conclusion
The Scottish Budget income tax changes for 2026–27 deliver small but positive adjustments for many taxpayers by lifting thresholds for lower bands. However, with higher tax bands frozen and other tax pressures emerging, the overall impact differs across income groups. For most, there will be a small gain; for some higher earners, tax burdens could remain higher relative to the UK.
Strategic financial planning and awareness of broader budget measures will help individuals understand their position in the evolving Scottish tax landscape.
FAQs
Will pensioners see changes to their income tax?
Yes, changes to thresholds may affect how much taxable income pensioners pay, but benefits like the Personal Allowance still apply.
Can moving elsewhere in the UK reduce income tax?
Potentially, since Scotland’s bands and tax rates can differ from UK rates, relocation may affect overall tax, but other costs and residency rules also matter.
How does this affect self‑employed people?
Self‑employed individuals also pay Scottish income tax bands on earnings, so changes will impact them similarly to employees.