Scottish Income Tax 2025 to 2026: factsheet

Income Tax Policy Proposal: Scottish Budget 2025-26

• The Starter rate band will increase by 22.6% and the Basic rate band will increase by 6.6%. This will increase the thresholds for paying both the Basic and Intermediate rate of tax by 3.5%.
• This increase is significantly above inflation, which is 1.7%, based on the Consumer Price Index from September 2024.
• The Higher, Advanced and Top rate thresholds will be frozen at their current levels in cash terms to the end of this Parliament (2026-27).
• The UK Government confirmed in the 2024 Autumn Statement that the UK-wide Personal Allowance will remain frozen at £12,570.
• The Scottish Fiscal Commission (SFC) has forecast that Income Tax will raise just under £20.5 billion in 2025-26 in Scotland.

The tax rates you pay in each band if you have a standard Personal Allowance of £12,570 are shown in Table 1.^[1]

*Assumes individuals are in receipt of the standard Personal Allowance.

**Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.

Impact on individual taxpayers of changes to Scottish Income Tax

• It is estimated over 34% of Scottish adults (over 1.6 million out of 4.65 million adults) are not affected by the 2025-26 policy changes as their income is below the UK-wide Personal Allowance of £12,570.
• Those earning less than around £30,300 – which is around 51% of Scottish taxpayers – will continue to pay slightly less Income Tax in 2025-26 than if they lived elsewhere in the UK.
• No taxpayer will pay more Scottish Income Tax in 2025-26 than they did in 2024-25 on their current income.

The impact of Income Tax policy in 2025-26 on different taxpayers can be considered by comparing take home pay in 2025-26 to a scenario where all tax bands are increased in line with inflation, which is the SFC’s baseline assumption.

This is illustrated in the table below alongside a comparison of take-home pay resulting from Scottish Income Tax policy compared to the rest of the UK in 2025-26. For a given income, the table below shows:

• The impact of Income Tax policy in 2025-25 relative to the SFC baseline, (assumed inflationary increase to all bands).
• The impact of Income Tax policy in 2025-26 compared to Income Tax policy in 2024-25.
• The impact of Scottish Income Tax policy in 2025-26 compared to Income Tax policy in the rest of the UK.

For example, in 2025-26 taxpayers earning the median income of £29,800 will be £5 better off than if they lived elsewhere in the UK and £15 better off in 2025-26 than they were in 2024-25. They will also be £12 better off than if all Income Tax bands had increased by inflation.

Impact of Income Tax changes on Scottish households

• Increases to the Basic and Intermediate rate thresholds have a small positive impact in the bottom half of the income distribution. The negative impact of frozen thresholds principally falls on the highest earning 20% of households, with the top 10% paying an average of 0.1% of their income (around £130) more.
• Scottish Income Tax changes – Increases to the Basic and Intermediate rate threshold, while freezing the Higher, Advanced and Top rate thresholds, mean that almost half (47%) of Scottish households are better off, with over three-quarters (76%) of households either better off or unaffected as a result.
• Overall, around 62% of households in Scotland are better off or unaffected under the Scottish tax and social security system compared to the rest of the UK.

Source: OCEA analysis using UKMOD

International Comparison of Scottish Income Tax

• The below figure sets out an international comparison of estimated Income Tax and social security contributions (NICs) as a share of gross income and social security across the household income distribution in Scotland, England and across other EU countries^[3][4].
• The Scottish Income Tax system is progressive. Personal tax as a proportion of income is generally lower than the EU median across household deciles, with households around the median income paying less tax than the average household across EU countries.
• The average proportion of tax paid by households at the top and bottom of the distribution is estimated to be more similar to that seen in other EU countries.
• Household comparisons between Scotland and England will reflect differences in tax policy, but also differences in the distribution of household income.

Analysis with UKMOD and EUROMOD figures