Scotland's Tax Strategy: Building on our Tax Principles

Chapter 1 - Our Vision

This Tax Strategy sets out our medium-term ambitions for how the tax system will develop to support the delivery of our four government priorities: eradicating child poverty, growing the economy, tackling the climate emergency, and ensuring high quality and sustainable public services.

The approach set out in this Strategy builds on the principles which formed our Framework for Tax. This will support the progression to a tax system which aligns policy aims with outcomes, is informed by robust evidence and engagement with others, and enables us to take a system wide and comprehensive approach to tax policy in Scotland.

The Existing Tax System

We have delivered a fair and progressive tax system by embedding our distinctive and ambitious Scottish approach to taxation in our policy choices, raising significant revenue with the limited tax powers that we have available. We have worked in partnership with Revenue Scotland and HMRC to ensure that the processes and systems for administering and collecting devolved taxes are robust and deliver value for money.

The Scotland Acts 2012^[iii] and 2016^[iv] devolved significant new powers to the Scottish Parliament. This change in the fiscal landscape required the creation of new fiscal institutions, namely Revenue Scotland, as the collection body for Scotland's devolved taxes, and the Scottish Fiscal Commission (SFC) to provide the independent forecasts which underpin the Scottish Budget. To further facilitate the devolution of powers, the Scottish Government strengthened its relationship with HMRC to ensure the efficient and effective collection of Scottish Income Tax revenues. These changes also required the expansion of the roles and remit of institutions, such as Audit Scotland and the Scottish Courts and Tribunal Service.

The Scottish tax system is made up of a combination of fully devolved tax powers related to Land and Buildings Transaction Tax (LBTT) and Scottish Landfill Tax (SLfT); partially devolved tax powers over rates and bands for non-savings, non-dividend Income Tax; and local taxes which fund local services, including Council Tax and Non-Domestic Rates (NDR). The Scottish Parliament has also legislated to support the future introduction of Air Departure Tax, a Scottish Aggregates Tax, and to allow local authorities to introduce a Local Visitor Levy, with the possibility of further tax powers being devolved to the Scottish Parliament on a Scottish Building Safety Levy to contribute to the costs of cladding remediation.

The Scottish tax system sits within a broader system, parts of which are devolved to the Scottish Government as set out above and parts of which remain reserved to the UK Government. Tax and economic policy decisions made by the UK Government have a direct impact on Scottish finances and the delivery of our priorities, including economic growth. Within Scotland, there is a further level of devolution with local taxes being determined and administered by local authorities. Managing this complexity and how taxes impact individuals, households and businesses requires a long-term view of the cumulative balance of taxes across the UK, Scottish and local level.

Analysis published at the Scottish Budget 2025-26^[v] showed that the decisions made on Scottish tax and social security policy since the devolution of powers in 2016 have enhanced the progressivity of the overall system: the higher a household's income on average, the greater the share of their income is paid in tax, and the less they receive in social security.

However, there is clearly a balance to be struck when considering the potential for behavioural change by individuals and businesses in response to tax policy, and the impact on other priorities such as economic competitiveness.

The tax system also has a role to play in encouraging positive behavioural change, for example through SLfT objectives which contribute to Scotland’s Zero Waste Plan^[vi] by incentivising the prevention, reuse and recycling of waste.

Local taxation

Local government revenue funding relies on a combination of General Revenue Grant (GRG) plus NDR Income, any specific revenue grants, and local revenue raised (primarily from Council Tax). The policy and legislative framework that defines Council Tax has been wholly devolved to the Scottish Parliament. Council Tax is expected to contribute almost £3.0 billion towards the funding of local public services in 2024-25.

NDR are administered and collected by councils, with revenue pooled at a Scottish Government level before being redistributed to councils based on the agreed needs-based distribution formula. NDR are expected to contribute £3.1 billion towards the funding of local public services in 2024-25 (around 19%^[vii] of local government general funding). We have delivered the lowest Basic Property Rate in the UK for seven years in a row. The Scottish Government continues to maintain the most generous Small Business Bonus Scheme, Fresh Start and Day Nursery reliefs in the UK, with almost 154,000 properties in receipt of relief on 1 June 2024, accounting for 61% of non-domestic properties on the valuation roll. Reliefs funded by the Scottish Government are forecast to save ratepayers £721 million in 2024-25 ^[viii].

The Scottish Government has led the way in the UK on reforms to NDR following the Barclay Review, which published its final report in 2017, introducing three yearly revaluations from 2023 with a one-year tone date - which remains the shortest tone date in the UK. These changes ensure that rateable values better reflect changing market circumstances. In 2018 we also introduced the flagship Business Growth Accelerator relief, which is more generous than Improvement relief in England. Other changes arising from the Barclay Review modernise the approach, reduce appeal volume and ensure greater transparency and fairness in property valuations.