The General Election and Scotland – an explainer

What taxes are devolved to the Scottish Parliament?

The Scottish Parliament has powers in relation to:

• Income tax – setting the rates and bands of income tax paid on non-savings, non-dividend income tax (such as income from a job, self-employment, pension, taxable benefits or rental income).
• Land and Buildings Transaction Tax (LBTT) – the devolved replacement for UK Stamp Duty Land Tax (since 2015).
• Scottish Landfill Tax – a tax on waste that is sent to landfill.

The Scottish Parliament also sets the rules for two local taxes (Council Tax and Non-Domestic (Business) Rates) and has done since it was established in 1999.

Doesn’t the Scottish Parliament have other tax powers?

Yes. Holyrood is also going to have the power to introduce a replacement for Aggregates Levy. However, the Scottish Aggregates Tax is still being legislated for and isn’t expected to be introduced until April 2026.

The Scottish Parliament also has the power to introduce a Scottish replacement for Air Passenger Duty, but this was put on hold in 2019. A proportion of VAT revenues raised in Scotland was also due to be assigned directly to the Scottish Budget. This is also on hold while the UK and Scottish governments work out a formula for allocating the money to the budget.

What about local taxes?

In addition to Council Tax and Business Rates, legislation has been passed to let councils tax workplace car parking. A Bill is also being debated by parliament that would let councils introduce a tax on tourists. Both have still to be introduced.

Does the Scottish Parliament control all aspects of income tax?

No. The Scottish Parliament can only set the rates and bands of non-savings, non-dividend income. While this accounts for most of the income tax raised in Scotland, it is not the complete picture.

The UK Parliament still decides things like the tax-free personal allowance, what counts as taxable income, and tax reliefs and deductions. HMRC is still responsible for administering and collecting income tax in Scotland. Also, the UK Parliament continues to set rates and bands of income tax on savings and dividends. These decisions apply in Scotland as well as the rest of the UK.

What has income tax devolution meant for Scottish taxpayers?

Devolution has resulted in the Scottish Parliament creating an income tax regime distinct from the rest of the UK.

In the current tax year (2024/25), Scottish taxpayers with earnings below £28,867 pay less income tax than someone with the same earnings elsewhere in the UK. Above this amount, they pay more.

Why are taxes different ?

Scotland has three additional rates of income tax compared with the rest of the UK. It has a 19p ‘starter’ rate of tax that helps reduce bills for those with earnings under £28,867. The size of Scotland’s 20p ‘basic’ rate band is smaller than the UK’s, there is a 21p ‘intermediate’ rate of tax and a 45p ‘advanced’ rate of tax. The higher (42%) and top (48%) rates are set higher than their UK equivalents (40% and 45%).

The threshold above which you start to pay higher rate tax is lower in Scotland (£43,662) than in the rest of the UK (£50,270).

Does this create any complications?

There are some complications. Firstly, because National Insurance thresholds are linked to UK tax thresholds, some Scottish income taxpayers face a higher marginal rate of tax on earnings between the Scottish (£43,662) and UK (£50,270) higher rate tax thresholds. In 2024/25, the rate is 50% in Scotland, compared with 28% in the rest of the UK.

Since the Scottish rates and thresholds apply to non-savings and non-dividend income only, a Scottish taxpayer who has for example both employment income and taxable savings income, such as bank interest, and/or dividend income may have to consider both the UK rates and thresholds and the Scottish rates and thresholds to work out their income tax liability. The same is true for those who have capital gains to declare.

In addition, Scottish taxpayers who are either married or in a civil partnership lose eligibility to claim Marriage Allowance at a lower level of income than taxpayers in the rest of the UK. This is because you cannot claim Marriage allowance if either partner or spouse pays any tax at the higher rate.

You say, ‘rest of the UK’, but doesn’t Wales have devolved income tax powers?

Wales does have some income tax powers, but these are not as extensive as Scotland’s. It can set ‘Welsh rates’ of income tax, but it has chosen to keep its overall tax rates the same as UK rates.

Are there any UK income tax policies that would apply in Scotland?

Any changes to the tax-free personal allowance would apply in Scotland as this is set on a UK wide basis. The Liberal Democrats have said they would increase it (to an unspecified amount) when resources allow Reform UK wants to increase it to £20,000.

Any changes or freezes to UK income tax rates and thresholds would only apply to savings and dividend income and not on earnings unless the Scottish Government chose to replicate them. Both the Conservatives and Labour have said they will not increase income tax rates. Reform UK want to increase the higher rate threshold to £70,000.

What about National Insurance?

Any changes to National Insurance would apply in Scotland, such as the Conservatives’ plan to cut employee NI to 6% or the UK Green Party proposal to abolish the Upper Earnings Limit so that people with earnings above £50,270 pay National Insurance at a rate of 8% (instead of 2%). The Scottish Greens have suggested merging income tax with National Insurance.

Are there any other plans that wouldn’t apply to Scotland?

The Conservatives want to abolish stamp duty land tax for first time buyers on properties worth up to £425,000. This wouldn’t apply as the devolved LBTT applies in Scotland, which has its own scheme to help first-time buyers.

Are any of the parties are calling for more tax devolution?

Both the SNP and Scottish Greens have used their manifestos to call for the full devolution of tax raising powers to the Scottish Government. They would also like the next UK Government to replicate the system of Scottish rates and bands of income tax, while the Greens have also suggested merging income tax and National Insurance. You can read more about their plans by clicking on the relevant links.