Scottish Budget 2025 to 2026: Scottish tax ready reckoners

Introduction

Building on our Framework for Tax, Scotland’s Tax Strategy^[1] outlines our approach to tax policymaking, an important part of which is to engage more with stakeholders and increase public understanding of tax policy. As part of this approach, the Scottish Government has published Income Tax ‘ready reckoners’ annually since March 2021. This is in line with similar publications by HMRC and the Welsh Government^[2]. Since May 2023, the ready reckoners have been expanded to cover a broader range of devolved taxes. The purpose of the ready reckoners is to assist researchers and policymakers in considering the revenue impacts of illustrative policy changes to improve transparency and facilitate public understanding in this area.

The ready reckoners in Table 1 provide an order of magnitude of how much revenue could be raised, or foregone, over and above the policies announced for 2025-26. For example, a 1p increase in the Starter Rate of Income tax is estimated to raise £80m in addition to the 2025-26 policy package. They are not intended to be exhaustive but can be used to understand the potential impacts of tax policy proposals on the Scottish Budget.

The ready reckoners have been produced by Scottish Government analysts using in-house economic models that are in line with the SFC’s general framework and assumptions for policy costings, as set out in detail by the SFC in May 2021.^[3] In practice, the SFC costs policies on a case-by-case basis, considering the details of each individual policy and the wider economic context. The ready reckoners should therefore be used to provide only a broad indication of the potential revenue impacts, as the SFC’s final policy costings when produced following a tax change may differ.

The ready reckoners only show the direct impact on Scottish tax liabilities and receipts and do not include any wider effects on the Scottish economy, other devolved or local tax receipts, or UK Government revenues. Some behavioural responses are captured for Income Tax and for the rates of residential LBTT, non-residential LBTT and the (residential) Additional Dwelling Supplement. These behavioural responses include, for example, decisions on whether to work or not, whether to re-locate to or from other parts of the UK or the world to Scotland, or whether to proceed with the purchase of land or property. No behavioural responses are included for NDR.

All ready reckoners assume that any tax changes will be implemented within a sufficiently short space of time so that there is no opportunity for forestalling behaviour. Forestalling refers to a situation where taxpayers move income, or transactions, across time for the specific purpose of minimising their tax burden (e.g. bring forward income, or a transaction, to avoid a future tax rate increase, or delay income, or a transaction, to benefit from a future tax rate decrease).