Finance Secretary Shona Robison has outlined the Government’s tax and spending priorities for the upcoming financial year.
While the Scottish Government is attempting to focus on social support, economic growth, and sustainability, the Budget introduced several important tax measures that may affect your business.
These include adjustments to…
- Income Tax thresholds
- Land and Buildings Transaction Tax (LBTT)
- Non-Domestic Rates (NDR).
Here’s my breakdown of the key changes.
Income Tax: Threshold changes and freezes
The Scottish Government will increase the Starter, Basic, and Intermediate Income Tax thresholds by 3.5 per cent, effective from 6 April 2025.
These changes mean:
- The Starter rate (19 per cent) now applies to earnings between £12,571 and £15,397.
- The Basic rate (20 per cent) covers earnings from £15,398 to £27,491.
- The Intermediate rate (21 per cent) applies to earnings from £27,492 to £43,662.
Meanwhile, the thresholds for the Higher (42 per cent), Advanced (45 per cent), and Top (48 per cent) rates remain frozen.
This freeze will generate additional revenue through "fiscal drag," as rising wages push more individuals into higher tax brackets.
The Scottish Government confirmed there will be no new Income Tax bands or rate increases during this parliamentary term.
Land and Buildings Transaction Tax (LBTT): Higher costs for second homes
While the main residential LBTT rates remain unchanged, the Additional Dwelling Supplement (ADS) applied to second homes and additional properties has increased from 6 per cent to 8 per cent.
This change took effect on 5 December 2024, but transactions with signed legal agreements before this date will retain the old rate.
First-time buyers continue to benefit from relief that extends the nil-rate band up to £175,000.
Scottish Landfill Tax (SLfT): Rate increases
The standard rate for Scottish Landfill Tax will rise to £126.15 per tonne, and the lower rate will increase to £4.05 per tonne from 1 April 2025.
These adjustments align with UK Landfill Tax rates for the same period.
Contributions to the Scottish Landfill Communities Fund, supporting environmental projects, will remain capped at 5.6 per cent of tax liability.
Non-Domestic Rates (NDR): Relief for hospitality
The Basic Property Rate for properties with a rateable value of £51,000 or less remains frozen at 49.8p.
However, the Intermediate and Higher Property Rates will increase slightly to 55.4p and 56.8p respectively.
Hospitality businesses will benefit from a 40 per cent relief on NDR liabilities for properties in the Basic Property Rate band, capped at £110,000 per business.
Island-based hospitality premises and certain rural properties in Cape Wrath, Knoydart, and Scoraig will receive 100 per cent relief under the same cap.
How the Budget will affect Scottish businesses
For businesses, the Scottish Budget is going to bring some challenges.
The increased ADS on additional properties could deter investment in the property sector.
However, I’m sure hospitality businesses, especially those in rural and island locations, will welcome the targeted NDR relief.
The changes to Income Tax thresholds may slightly reduce the tax burden for lower earners, but frozen higher-rate thresholds could increase costs for business owners and directors.
Meanwhile, businesses operating in waste management must prepare for higher landfill costs, though opportunities for tax credits via the Landfill Communities Fund remain.
Overall, the Budget aims to balance short-term relief for key sectors with the long-term goal of addressing fiscal challenges.
Whether this will work is yet to be seen.
Scottish businesses will need to evaluate how these changes interact with their growth strategies and tax planning needs alongside their tax adviser.
