Impacts on Scotland are Mainly Indirect
Much of what was announced around property taxes do not have a direct effect on Scotland but do have an indirect effect. We will not be clear about the direction of tax and spend plans here until the Scottish Budget is announced on 13 January 2026.
Taxes in Scotland are either reserved to Westminster (e.g. National Insurance and VAT) or under the control of the Scottish Government (e.g. Land & Buildings Transaction Tax). However, even when a tax is reserved to the UK Government, the revenue it raises affects the ‘Block Grant’ that Scotland receives from Westminster and its adjustments. Therefore, there may be indirect impacts on government revenues in Scotland, even if the tax changes do not directly affect us.
New property tax changes announced by the Chancellor, such as the ‘mansion tax’ levy on properties valued over £2 million and the rise in property income tax rates (a 2 percentage point rise to the ordinary and upper tax rates on dividend income from April 2026 and on all rates on savings income from April 2027) are not applicable to Scotland, only if the Scottish Government announce similar changes in January.
Overall Positive Impact on Scottish Government Revenues
There was a lot of speculation about a manifesto bursting rise in income tax rates. This was not carried through, meaning that the Scottish Government does not have the estimated £1 billion per annum reduction in its funding that a 2 percentage point rise in the basic rate of income tax would have given (due to the way that the Block Grant functions). The various increased government spending measures announced by the UK Government mean that the Scottish Government will have around £800 million more in revenue and capital funding over the next five years, meaning that it is under less pressure to raise taxes or cut spending. In an election year, the Scottish Government will be reluctant to raise taxes unless it believes it has to.
Manageable Uncertainty over the Next Month
There has been a notable housing market slowdown across the UK as the uncertainty and speculation caused buyers and sellers to put plans on hold. In Scotland, this uncertainty will last for a little longer but (for the reasons above) there is less pressure for changes in Scottish taxation (including on property) in the forthcoming Scottish Budget due to the UK Budget changes announced last week, although the Scottish Government may choose to follow the UK on property income tax rises, it will need to be mindful that this could be passed onto tenants in already heated rental markets in parts of Scotland. A mansion tax seems less likely as the Scottish Government would also have to commit a revaluation of properties in the higher bands, something that would be time-consuming to do and would have resource commitments.
Despite a hostile reaction in parts of the mainstream media and from opposition parties, the UK Budget seems to have calmed the bond markets (who lend the government the money it needs to operate) as well as Labour backbenchers, therefore also providing the UK Government with the political stability it needs.
As we are about to move into the Christmas and New Year break, the potential uncertainty of as Scottish Budget should not weigh too heavily on a housing market already in a mild hibernation. And the chances of greater burdens on the housing market here do seem less likely now after the UK Budget, although nothing is ever certain (except death and taxes).
NB: This article is an opinion piece and should not be interpreted as fact. It reflects the personal views of Dr. John Boyle, Director of Research & Strategy.
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