All Quiet on the Devolved Tax Front?

December saw Budget developments in each of the UK devolved Governments. Although there were few tax changes announced, that does not mean things will remain quiet on the devolved tax front for long.

Shona Robison, the Cabinet Secretary for Finance and Local Government, delivered the draft Scottish Budget 2025-26 on 4 December 2024. Billed as a Budget for growth, it outlined the Scottish Government’s tax and spending plans for the year ahead, centered on the priorities of eradicating child poverty, growing the economy, tackling climate change and delivering high quality and sustainable public services.

Although Scotland has more devolved tax powers than its peers, the Budget was a relatively muted affair in terms of tax changes. The key tax headlines are set out below, but full details of all the Budget measures can be found on the Scottish Government website. 

Last year’s Budget introduced an additional ‘Advanced’ income tax band and increased the Top rate of tax: this event was far quieter on the income tax front. The Scottish Government pledged that no new Scottish income tax bands will be introduced, nor will there be any increases to Scottish income tax rates, for the remainder of this Parliament (the next Scottish general election must be held by May 2026 at the latest). 

From 6 April 2025, the Basic and Intermediate thresholds will each increase by 3.5 percent. In addition, a commitment was made to increase the Starter and Basic rate bands by at least the rate of inflation until the end of this Parliament. The Higher, Advanced and Top rate thresholds will remain unchanged. 

On Non-Domestic (business) Rates (NDRs), the Basic Property Rate will be frozen and the Intermediate and Higher Property Rates will increase by inflation from 1 April 2025. The Scottish Government announced a temporary 40 percent relief in 2025-26 for properties in the hospitality sector that are liable to NDR at the Basic Property Rate, capped at £110,000 per business. The Scottish Fiscal Commission estimates this measure will cost £22 million. This policy is much more limited than the UK Autumn Budget’s temporary 40 percent relief for retail, hospitality and leisure businesses in England. The Fraser of Allender Institute (one of Scotland’s leading economic research units) estimated that it would cost roughly £220 million to replicate this relief in Scotland - compared to the £147 million that was generated by the decision through the Barnett Formula.

As expected, from 1 April 2025 Scottish Landfill Tax (SLfT) rates will be increased in line with previously announced UK Landfill Tax increases. Maintaining a lower SLfT rate would have risked ‘waste tourism’, with waste producers opting to dispose of material north of the border to take advantage of lower costs. 

Scottish Land and Buildings Transaction Tax (LBTT) rates and bands remain unchanged, but the Government has said it will conduct a five-year review of LBTT by the end of this Parliament, to support an evaluation of key aspects of the legislation. Further details will be announced in early 2025.

The Government confirmed it will not take forward proposals to reintroduce a Public Health Supplement for large retailers selling tobacco and alcohol. 

The Scottish Government also published its Tax Strategy alongside the Budget, intended to set out further details of its approach to tax policy development. The document contains few firm tax policy commitments. In addition to the commitments above on Income Tax and LBTT, there are plans to introduce a Scottish Aggregates Tax by 1 April 2026, and to remove the subsidy control issues that are standing in the way of implementing a Scottish Air Departure Tax. A Building Safety Levy is also planned. The Strategy discusses exploring changes to a range of other taxes, including Council Tax and NDRs. There is a commitment to report on progress against the Strategy in early 2026.

On 10 December 2024, Mark Drakeford, Cabinet Secretary for Finance, presented his Budget plans to the Senedd. With Labour in power in both the UK and Wales for the first time in 14 years, the Budget focus was on consistency with Westminster’s tax policy.

The priorities for the Budget were cutting NHS waiting times, promoting green growth and jobs, boosting standards in education, providing more homes for social rent and transforming transport networks. Full details of the Budget measures can be found on the Welsh Government website.

There were no changes to the Welsh Rates of Income Tax in 2025-26, meaning Welsh income taxpayers will pay the same rates as their counterparts in England and Northern Ireland.

The NDR multiplier will be capped at 1 percent for 2025-26 and retail, hospitality and leisure businesses will continue to receive 40 percent relief towards their bills. Mr Drakeford told the Senedd that this would be the final year of this enhanced relief.

The Land Transaction Tax (LTT) payable on higher residential rates transactions (applying to purchases of additional residential properties) have been increased by 1 percentage point for each band with effect from 11 December 2024. A press release accompanying the Budget points out that this change is broadly in line with changes made to Stamp Duty Land Tax in England and Northern Ireland.

Like Scotland, the Welsh Landfill Disposal Tax (LDT) standard rate has been increased to £126.15 per tonne from 1 April 2025. However, following the public consultation on the lower rate of LDT, the Budget proposes increasing the lower rate from £3.30 to £6.30 per tonne from 1 April 2025 – more than the lower rate of £4.05 per tonne in the rest of the UK. The increase is designed to reflect the Welsh Government’s policy intention of incentivising reuse, recycling and reduction of waste, and to reduce any incentive to misdescribe waste but it is not clear how this will be achieved by having a higher lower rate of tax than the rest of the UK. In the short term it could impact upon the availability of qualifying materials for restoration and other landfill uses in Wales and the measure may well impact future policy decisions in the rest of the UK as Westminster and Holyrood seek to minimise waste tourism. 

On 3 December 2024 Caoimhe Archibald, Minister of Finance, told the Northern Ireland Assembly it was her intention, subject to Executive agreement, to publish a draft Budget for 2025/26 in early December, to allow time for a full public consultation to be held before a final Budget is agreed by the Executive prior to the start of the new financial year in April 2025.

At the time of writing, no draft Budget has been forthcoming, and with Christmas fast approaching time is running out to progress the Budget in 2024. This is perhaps unsurprising. First Minister Michelle O’Neill recently expressed disappointment at the ‘slippage’ in the Executive’s 2024 legislative programme - with less than half of the bills proposed by the Executive in June 2024 being brought to the assembly so far. She said the Executive would set out a clear plan to address this in the New Year.

In the meantime, the Minister of Finance has set out a strategic roadmap for the local rating system, including a consultation to be launched in January 2025 on proposals to reduce the Early Payment Discount on rates from 4 percent to 2 percent and elevate the level of the Maximum Capital Value on domestic properties from £400,000 to £485,000.

Although the Scottish and Welsh Budgets contained no major tax policy changes, there is much uncertainty associated with the announcements.

For example, both the Scottish and Welsh Governments lack a majority, so they are relying on the support of opposition politicians to ensure each Budget passes. This will not be a straightforward process as opposition parties have criticised the contents of each Budget. The Scottish Labour leader Anas Sarwar even told reporters he would rather have a snap election than support a Budget he disagreed with. The need to obtain political agreement could mean some of December’s tax announcements do not survive intact.

There is also uncertainty regarding significant costings in each Budget, notably how much each devolved Government will receive from the UK Government to compensate for the increased cost in public sector wages, following the UK Autumn Budget increase in employers’ National Insurance Contributions. The final settlements may not cover the full costs incurred by the devolved Governments and the quantum is unlikely to be agreed until next summer - after the point at which the additional tax becomes payable in April.

There is also debate around how much the Scottish Government’s decision to deviate from the UK Governments policy on the two-child benefit cap will cost and how it will be funded.

So, while these announcements may seem to be straightforward at first glance, beneath the surface are a range of challenges that we will hear more about in 2025.

For further information please contact:

• Tim Sarson
• Stefanie Redmond