The Scottish Budget for 2026/27, which included announcements on business rates, commercial property transaction taxes, and environmental taxes in Scotland was presented on 13 January 2026.
This article gives an overview of devolved tax announcements that affect businesses with operations and employees in Scotland. You can also read our accompanying article on measures for individuals.
As a result of increases in the rateable values (RV) of properties arising from the 2026 revaluation, the Scottish Government proposed decreases in the Basic, Intermediate, and Higher Property rates (poundage) from 1 April 2026 as set out below:
NDR relief specific to businesses that are chargeable at the Basic or Intermediate Property rates in the retail, hospitality and leisure sectors has decreased to 15 percent, but will remain at 100 percent for islands and specified remote mainland locations. Relief remains capped at £110,000 per business.
The Small Business Bonus Scheme and Business Growth Schemes, as well as a number of Scotland specific reliefs, will be maintained, and a 100 percent relief for qualifying electric vehicle charging points will be introduced for 10 years from 1 April 2026.
Revaluation Transitional Relief will be available to protect businesses most affected by the 2026 revaluation. Transitional Relief is available to all businesses and caps the year-on-year increase in gross liability, based on RV, by the percentages in the table below:
A further Small Business Transitional Relief will be introduced for qualifying ratepayers who will lose eligibility for other reliefs from 1 April 2026. Under this relief, ratepayers will pay 25 percent of any increase to their net bill in the first year (2026/27), 50 percent in the second year (2027/28) and 75 percent in the third year (2028/29).
LBTT applies to chargeable non-residential property transactions, including entering into non-residential leases. There will be no changes to non-residential LBTT rates and bands from 1 April 2026.
Prior to the Budget, the Scottish Government brought forward draft regulations to exempt the creation, issue, transfer, redemption or cancellation of units in Co-Ownership Authorised Contractual Schemes (CoACS) from LBTT (though this exemption will not apply to the acquisition of chargeable interests in property by CoACS themselves). Subject to Parliamentary approval, this relief will come into effect from 1 April 2026.
However, “further detailed consideration” is required following last year’s consultation before introducing an LBTT relief for Reserved Investor Funds (RIFs) similar to the Stamp Duty Land Tax (SDLT) relief available in England and Northern Ireland, and an LBTT relief (again similar to one available under SDLT) for ‘seeding’ properties from unauthorised investment vehicles into Property Authorised Investment Funds, CoACS and RIFs.
A broader review of the LBTT regime, which includes examining mixed use (i.e. residential and non-residential) property transactions, non-residential leases, and support for investment in Scotland, is due to report before the end of the Parliamentary term. This review is intended to support LBTT policy development in the next Parliament, and might potentially set out the Scottish Government’s thinking following Archer (UK) Limited v Revenue Scotland (see our previous article), a significant First-tier Tribunal for Scotland (Tax Chamber) decision, which held that no LBTT charge arises on the variation of a lease granted when SDLT applied in Scotland, and which is being considered by the Scottish Government.
The standard and lower SLfT rates will increase in line with those for UK Landfill Tax from 1 April 2026. This continues the Scottish Government’s policy of avoiding differentials to discourage the cross-border movement of landfill waste.
Due to declining SLfT revenues which mean it is no longer financially viable, following consultation the Scottish Landfill Communities Fund, which allows landfill operators to contribute a capped share of their SLfT liability to community and environmental projects in return for a 90 percent tax credit, will close to new contributions from 1 April 2026. Project funding is expected to continue until March 2028.
SAT, the devolved replacement for Aggregates Levy in Scotland, will come into effect from 1 April 2026 at a rate of £2.16 per tonne of taxable aggregate. This aligns with the UK Aggregates Levy rate for 2026/27 to provide certainty during the introduction of the new tax. SAT rates for subsequent years will be set during future Scottish Budgets.
ADT, the long-delayed replacement for Air Passenger Duty (APD) on chargeable flights taking off from Scottish airports, will come into force from 1 April 2027. To provide certainty during the introduction of the new tax, the current Scottish Government intends that ADT rates will match APD rates for 2027/28, with ADT rates for subsequent years set as part of the relevant Scottish Budget process.
The Scottish Government will also consult this year on a proposed ADT exemption for airports in the Highlands and Islands.
SBSL will come into force on 1 April 2028 with advance notice of applicable rates published in June 2026.
Whilst the Scottish Budget cannot change employer’s payroll and other employment tax compliance obligations, this section summarises some general considerations for employers with Scottish taxpayers in their workforce.
HMRC are responsible for notifying employers of their employees’ Scottish taxpayer status for payroll withholding purposes by issuing PAYE codes with ‘S’ prefixes (more details on Scottish taxpayer status and Scottish Budget measures for individuals are available in our accompanying article). HMRC have also confirmed that, when preparing separate PAYE Settlement Agreement (PSA) calculations for the relevant employee populations, it is acceptable to base the split between Scottish taxpayers, Welsh taxpayers, and other UK taxpayers on those PAYE codes.
However, this means that, in effect, employers must ensure they have a system in place to review their employees’ PAYE codes at the end of the relevant tax year (as Scottish or Welsh taxpayer status applies for the whole year) when preparing their PSA calculations. They should also consider what employee communications might be appropriate to ensure employees understand their obligations to assess and inform HMRC of their Scottish (or Welsh) taxpayer status.
Additionally, where an employer operates an Appendix 6 modified payroll agreement in respect of tax equalised expatriates, HMRC will not issue PAYE codes for covered employees. For those cases, the employer must have appropriate systems and processes in place to ensure they can correctly identify Scottish (and Welsh) taxpayers based on the applicable statutory tests, relevant facts, and HMRC’s published guidance on Scottish (and Welsh) taxpayer status.
Although the Scottish National Party governs as a minority administration, the Budget measures are likely to pass in their current form. KPMG has extensive experience supporting businesses and employers to confirm and manage their devolved tax obligations in Scotland. Please contact the authors, or your usual KPMG in the UK contact, if you would like to discuss the potential impact of the Scottish Budget announcements on your business.
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