The Scottish Budget 2026

Scotland is making a tiny income tax “cut” by nudging up two thresholds. It’s not a big giveaway, more like taking the edge off a quiet tax rise caused by frozen thresholds elsewhere.

Income tax: what’s changing?

What’s actually moving

From 6 April 2026, the Basic and Intermediate thresholds increase (and the starter band stretches too). Rates stay the same. Higher/Advanced/Top thresholds are frozen.

Scottish income tax bands (earned income) 2026/27

(Assuming standard Personal Allowance stays at £12,570!)

What this means day-to-day

• If you’re under ~£43k, you might see a small saving.

• If you’re around £43,662, watch the jump: income above this is taxed at 42% (on earned income).

• Because higher thresholds are frozen, inflation / pay rises can still push you into higher tax bands (“fiscal drag”).

2) Sole directors: PAYE + dividends (the bit most people miss)

A common setup is £12,570 salary (PAYE) then the rest as dividends.

Here’s the simple way to think about it:

• Your salary is taxed using Scottish income tax bands above.

• Dividends are taxed using UK-wide dividend rules/rates (not Scottish rates).

• BUT your total income still matters, because it influences where your dividends sit (basic vs higher etc.) once allowances are used up.

Practical takeaway:
This Scottish “tax cut” mostly affects the PAYE slice of your income. If most of your income is from dividends, the change may feel even smaller.

3) Sole traders & freelancers: the “£43k watch-out”

If your profits are creeping towards £43,662, it’s worth planning, because:

• Earnings above that move into the 42% band (earned income).

• Even a small increase in profits can create a noticeable jump in tax on that top slice.

4) Childcare/family support: the clearer “win”

If you’re eligible (this is benefit-linked), the Scottish Child Payment is increasing:

• From 1 April 2026: £28.20 per week per child (up from £27.16).

• From 2027–28: families with a child under 1 will get a £40 per week rate for that baby.

What will people actually notice?

• If you qualify, it’s regular weekly cash support that helps with early years costs (childcare top-ups, nappies, food, travel).

• It’s not “free childcare”, but it can ease pressure, especially during that first year.

Bottom line (the quick read)

• Tiny tax change (mainly helps earned income under ~£43k, but only a little).

• If you’re near £43,662, plan ahead; that’s the big stepping stone.

• Sole directors taking dividends: this mostly affects your PAYE salary, not the dividend chunk.

• Child support is the standout: Scottish Child Payment rises, with a bigger rate for babies under one from 2027–28.