Potential UK Budget Ramifications for Scottish Real Estate

The recent UK Budget delivered by Chancellor Rachel Reeves introduced some significant changes, but their impact on Scotland remains uncertain.

Property Income Tax Changes

• In Scotland property income of individuals continues to be taxed under Scottish income tax bands (19, 20, 21, 42, 45 and 48%). 
• In England and Wales new property income tax bands will apply (22%, 42% and 47%).  
• These rates represent a 2% uplift on existing income tax bands.  Personal allowance and other reliefs will only be applied if unused elsewhere. 
• The Budget states: “The government will engage with the devolved governments of Scotland and Wales to provide them with the ability to set property income rates in line with their current income tax powers in their fiscal frameworks”. 
• This means the Scottish Government must decide whether to adopt similar changes.  Could this lead to a 50% tax bracket for property income for some investors? This question arises against a backdrop where Scottish property investors pay a 8% Additional Dwelling Supplement on LBTT which is already significantly higher than the equivalents in England and Wales.

The High Value Council Tax Surcharge (“Mansion Tax”) 

• Council Tax is devolved so this will not be directly implemented in Scotland.  
• However, the Scottish Government may consider a similar measure.  Property values differ significantly between the jurisdictions so thresholds would matter:
  • Research suggests that there are less than 1,000 properties that would value in excess of £2 million in Scotland.  
  • If however the trigger figure was lowered to £1 million the number of properties hit with a surcharge would increase to 11,330¹.  
  • At a minimum surcharge of £2,500 this could generate around £28.325 million in additional revenue.  

We await the Scottish budget on 13 January 2026 for clarity.

1. House prices: Hundreds more homes in North England and Scotland now more than £1million - full list 

The government will engage with the devolved governments of Scotland and Wales to provide them with the ability to set property income rates in line with their current income tax powers in their fiscal frameworks.

https://www.gov.uk/government/publications/budget-2025-document/budget-2025-html