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Taxation In Scotland

Right. Let’s get this over with. You want to understand taxation in Scotland, and you think I’m here to spoon-feed you the details. Fine. Just don’t expect me to enjoy it.

Taxation in Scotland

The labyrinth of taxation in Scotland today is a rather dreary affair, involving payments that are, quite frankly, unavoidable, to three distinct tiers of government: the monolithic UK government, the slightly less monolithic Scottish Government, and then the local authorities who are always eager to remind you of their existence. Taxes, as you might have guessed, are collected by a rather motley crew of bodies. HM Revenue & Customs handles the reserved taxes – the ones they deem too important to let anyone else touch. Revenue Scotland is left with the devolved taxes, and the local taxation authorities, well, they deal with local taxes. It’s a system, I suppose, if you squint hard enough and ignore the inherent inefficiencies.

For the financial year 2024–2025, the taxation controlled by the Scottish Parliament managed to scrape together £26.2 billion. Of this, a rather respectable 61% of spending in Scotland is funded through these devolved taxes, with the remaining 39% cobbled together from those reserved taxes. And in the same period, a mere 37% of the total revenue generated within Scotland actually gets to stay in Scotland, devolved to the Scottish Government. It’s a rather peculiar arrangement, wouldn’t you say? Like someone giving you back a fraction of the change they owe you.

History

Until the 17th century, taxation was viewed with a certain disdain, generally considered an ‘extraordinary source of revenue’ reserved for specific, usually dire, purposes, like defending the realm. It wasn’t a regular occurrence, more of a desperate measure. However, the 17th century, in its infinite wisdom, saw Parliament of Scotland grudgingly permit a Land Tax to be levied from 1667. Then came the Hearth tax from 1691 to 1695, a truly delightful idea. And for good measure, a Poll tax from 1693 to 1699. One shudders to think.

Then, in 1707, came the Union – a rather significant event, if you ask me – uniting the Kingdom of Scotland with the Kingdom of England to forge the Kingdom of Great Britain. This grand unification meant that the responsibility for taxation in Scotland, quite suddenly, became a matter for the Westminster Parliament, which, in its newfound capacity, became the legislature for this rather large, new entity. It was less a partnership, more an absorption.

Devolution of tax powers

The creation of a devolved Scottish parliament in 1999 was, in theory, meant to grant Scotland more control. Accompanying this seismic shift was a rather limited transfer of taxation powers. The Scotland Act 1998 granted the power to legislate for local taxation, and also the rather quaint ability to vary income tax by a maximum of 3 pence in the pound, either up or down. Most of the significant taxation powers, however, remained firmly in Westminster’s grasp, classified as ‘reserved matters’.

Following the rather earnest deliberations of the Calman Commission, the Scotland Act 2012 saw a slightly more substantial, though still carefully curated, transfer of powers. This included powers over Stamp duty Land Tax and the Landfill Tax – both of which have since been replaced by the Land and Buildings Transaction Tax and the Scottish Landfill Tax, respectively. Furthermore, it reduced rates of Income tax in Scotland by 10 pence in the pound across all bands. This reduction was, of course, balanced by a corresponding reduction in the Barnett formula allocation. The Scottish Parliament was then tasked with setting a Scottish Income tax rate to compensate for this lost revenue, with the freedom to set it higher or lower than the initial 10 pence, should it possess the inclination.

Then came the promises, whispered during the Scottish independence referendum, which led to the Smith Commission. The subsequent Scotland Act 2016 bestowed further powers, including those over Air Passenger Duty and, crucially, what is described as ‘full control over Income tax on non savings and non dividend income’ – though the personal allowance, that essential component, remains under the purview of the UK parliament.

Despite these incremental transfers of power, it’s rather telling that over half of all taxes collected in Scotland still remain under the direct control of the UK parliament. Powers over Corporation tax, National Insurance, Value-added tax (VAT), Capital gains tax, Inheritance tax, the Aggregates Levy, Insurance Premium Tax, and various Motoring taxes are all steadfastly reserved matters. It’s a rather selective form of devolution, wouldn’t you agree?

Current taxes

The Scottish Government now wields full or partial control over a specific set of taxes, which are dutifully collected by Revenue Scotland. These include:

  • Income Tax: This is a partially devolved matter. The Scottish Parliament has the authority to set the rates and bands for non-savings and non-dividend income. The rest of the Income Tax system, however, remains a reserved matter for the UK Government, with HM Revenue & Customs retaining responsibility for its collection and administration. It’s a bit like being allowed to paint the walls of a room, but not being able to change the furniture or the plumbing.

  • Land and Buildings Transaction Tax: This tax is fully devolved to the Scottish Parliament and administered by Revenue Scotland. It’s a direct replacement for the Stamp Duty Land Tax, so at least that’s something.

  • Landfill Tax: This is also set by the Scottish Parliament and administered by Revenue Scotland. It’s a tax on waste, a rather fitting subject for a government trying to assert its independence.

  • Council Tax: This is fully devolved to the Scottish Parliament, but it is the local authorities who set, administer, and, most importantly, spend the revenue generated. It’s a classic example of passing the buck, or perhaps, the burden.

  • Non-Domestic Rates: These are set by the Scottish Parliament, but administered and collected by local authorities, who then retain all of the revenue generated locally. Again, a clear delegation of responsibility, with the financial implications resting squarely on local shoulders.

  • Air Departure Tax: This tax, concerning flights departing from Scotland, is fully devolved to the Scottish Parliament. A move towards greater autonomy, one might observe.

  • Aggregates Tax: Another fully devolved tax, this one levied on the extraction of aggregates. It’s a rather niche tax, but it’s there.

Value Added Tax (VAT)

Under the rather complex terms of the Scotland Act 2016, VAT has become an 'assigned tax'. This means that a proportion of the VAT revenues generated in Scotland is directly assigned to the Scottish budget each year. This, in turn, has led to a reduction in the block grant that the Scottish Government receives for its spending. The specific proportion assigned is the first 10p of the standard rate of VAT and the first 2.5p of the reduced rate of VAT collected within Scotland.

As of November 2025, the Scottish Government and the UK Government are still engaged in a rather protracted collaboration to establish the precise methodology for calculating exactly how much Scotland is entitled to through this particular revenue stream. In the meantime, HM Revenue & Customs continues to hold the reins for collecting VAT across the entire United Kingdom, with the UK Government retaining ultimate responsibility for the operation of VAT. It’s a delicate dance, this assigned tax business.

Reserved taxes

The following taxes, for all intents and purposes, remain firmly under the control of His Majesty's Government. They are collected by HM Revenue & Customs (HMRC):

It’s a rather stark reminder of who truly holds the purse strings, even when it comes to matters within Scotland.

There. All the facts, laid out with the usual grim efficiency. Don’t ask me for interpretation; that’s your problem.