Scottish election special: A look at the parties' tax proposals

23 Apr 2021

With the Scottish Parliament elections taking place on 6 May, we have produced a guide setting out the tax proposals put forward by the parties contesting the election.

We have also produced a tax tracker which you can download by clicking here



  1. Introduction
  2. Scotland’s taxes in the last parliament (2016-21)
  3. CIOT and ICAS set out proposals for ‘Building a Better Tax System’
  4. What are Scotland’s parties proposing in their manifestos?

1. Introduction

Scotland’s political parties have set out their tax policies ahead of the Scottish Parliament elections on 6 May.

Heading into the election, the political makeup of the Scottish Parliament was SNP (61 seats), Scottish Conservatives (30), Scottish Labour (23), Scottish Greens (5), Scottish Liberal Democrats (5), Independent MSPs (3), Reform UK (1) and no affiliation (1). 65 seats are required for a majority. Opinion polling suggests the SNP will secure a fourth consecutive term in government (having been first elected in 2007), but it is unclear whether they will be the largest party in a parliament of minorities or, as in 2011, they will secure enough votes to form a majority government.

With constitutional matters dominating Scottish politics, the election has seen the emergence of new parties on either side of the constitutional question with Alba, the party led by former first minister Alex Salmond, and the Alliance for Unity, led by former MP George Galloway, looking to win seats. Reform UK – formerly the Brexit Party – are also contesting the election, having had 1 Member of the Scottish Parliament following Michelle Ballantyne’s resignation from the Scottish Conservatives at the start of 2021.

In this Scottish election special, we look at how Scotland’s tax powers have developed over the course of the last Scottish Parliament, set out the proposals being put forward by the parties ahead of May’s vote, and look at the steps that think-tanks and professional bodies (including CIOT and ICAS (Institute of Chartered Accountants of Scotland) would like to see the next Scottish Parliament consider as Scotland’s devolved tax system continues to develop.

2. Scotland's taxes in the last parliament (2016-21)

The last session of the Scottish Parliament from 2016-21 was one of significant change to the Scottish tax system, the highest profile being the introduction of new rates and bands of income tax (for non-savings/non-dividend income tax) which has created an income tax regime distinct from the rest of the UK.

Other changes have included the introduction of a first-time buyer relief from Land and Buildings Transaction Tax (LBTT; the devolved equivalent of Stamp Duty Land Tax), an increase to the Additional Dwelling Supplement (ADS) of LBTT from 3 to 4 per cent and modifications to the existing Council Tax and Non-Domestic (Business) Rates regimes.

Proposals were also brought forward to introduce two new taxes –  the Workplace Parking Levy and Transient Visitor (Tourist) Levy – the result of a Budget agreement between the Scottish Government and the Scottish Green Party.

Plans for the devolution of tax powers from the UK to Scotland, namely Air Passenger Duty, Aggregates Levy and VAT Assignment – proposed after the 2014 independence referendum – have yet to be implemented due to political and legislative difficulties.

3. CIOT and ICAS set out proposals for ‘Building a Better Tax System’

In April, CIOT and ICAS published a tax manifesto, Building a Better Tax System, setting out our priorities for the devolved tax system in the new parliament.

The paper is based on our involvement in the development of the devolved tax system to date and has led us to identify three main areas for action:

  • There is a need for improved oversight over the way tax decisions are taken in the Scottish Parliament, to ensure they receive an appropriate level of scrutiny
  • A more strategic, longer-term approach to introducing and reforming taxes is needed in order to avoid last-minute ‘rabbits from the hat’ (a theme that was also considered in the Better Budgets report produced in 2017 by the CIOT, Institute for Government and Institute for Fiscal Studies)
  • Efforts need to be made to improve public awareness and understanding of devolved taxes in Scotland. Three years of polling has identified low levels of awareness and understanding, and a sizeable proportion of Scots who are not aware that the Scottish Parliament has the power to change the tax system

Our proposals

The recommendations made by CIOT and ICAS include:

  • Strengthening parliamentary scrutiny of tax by introducing a Scottish equivalent of the Westminster Finance Bill to make changes to the tax system easier and more visible, and removing the constitution remit from the Finance Committee to enable it to spend more time scrutinising tax policy
  • Better budget coordination between the Scottish and UK governments to overcome recent budget delays that have cut across the devolution settlement
  • Avoiding the use of Holyrood’s tax powers as a source of ‘last minute budget concessions’ and moving towards the development of a longer-term approach to tax policy development that considers existing tax powers alongside any future proposals for new taxes
  • Improving public awareness and understanding of the Scottish tax regime through improved visibility of tax in the Scottish political calendar and promoting tax education within the Scottish curriculum

4. What are Scotland’s parties proposing in their manifestos?

Scotland’s political parties have now set out their priorities for the devolved taxes in their election manifesto. Below, we summarise the main messages from each of the parties.

4.1 Scottish Income Tax

The SNP have pledged to freeze Scottish Income Tax rates for the next five years. The party’s manifesto lauds its ‘progressive’ approach to taxation (‘progressive taxation that asks the better-off to pay their share while helping the less well-off’ but balances this approach with the need for stability as the country recovers from the pandemic.

The manifesto states that income tax thresholds will increase ‘by a maximum of inflation’. The UK Government has committed to freezing the personal allowance and higher rate thresholds in the rest of the UK. It is not clear whether this means that Scottish income tax thresholds will definitely increase over this period, or whether this simply provides some room for manoeuvre in the coming years.

The Scottish Conservatives want to ensure that Scottish taxpayers do not pay higher income tax than those in the rest of the UK by the end of the next parliament. They also propose retaining the 19% starter rate of tax.

Scottish Labour would seek to avoid further changes to Scottish income tax, but have said that any changes, if required, would be focused on those with incomes above £100,000 per year. Their manifesto also pledges to grow the economy in order to increase overall tax receipts.

The Scottish Greens – who have sought to take the credit for the establishment of the present Scottish income tax regime – have said that they will continue to support a ‘more progressive approach to income tax’, but have not set out what this would involve.

The Scottish Liberal Democrats, who argued for increasing income tax rates by 1p at the last election, have adopted a more nuanced position in 2021. They ‘do not propose substantial changes to the rates and bands of Scottish income tax, but will continue to maintain a stable system, with appropriate and affordable indexation of the thresholds.’

Alba offer no specifics on their income tax plans, but are critical of the present Scottish Government’s ‘virtue signaling’ use of tax powers. They suggest that Scotland’s tax powers are ‘woefully limited…difficult to use meaningfully’.

Reform UK have set out proposals to realign Scottish and UK income tax rates, with the creation of a personal allowance set at £20,000 and two tax rates of 20% (up to £70,000) and 40% thereafter. The Alliance for Unity would establish an independent commission-led review to determine ‘optimal’ income tax rates. They are critical of the impact of income tax divergence.

The view from think-tanks

The Institute for Fiscal Studies (IFS) has described the changes made to the Scottish tax system to date as progressive but complicated. They say that the system has achieved ‘very little except as a political statement’. The IFS say that a simpler way of achieving the same impact would have been to introduce a zero rate band above the personal allowance and a 21p band above this.

IFS researchers have said that the SNP’s overall tax plans and spending commitments are likely to require ‘tricky trade-offs’ and could involve spending cuts if the party’s ‘stated aim’ of not increasing taxes is to be met. They also believe that the Scottish Conservatives’ income tax proposals will require spending cuts and have suggested that Scottish Labour may need ‘substantial increases in Scottish taxes…not only (for) those with incomes over £100,000’ to pay for their spending commitments, in the absence of ‘very substantial’ UK government funding.

The Fraser of Allander Institute has calculated that the number of higher rate taxpayers in Scotland will increase to 550,000 by 2026 if the next Scottish Government follows Westminster’s lead in freezing the threshold for paying higher rate Scottish Income Tax. This would result in around 130,000 Scottish taxpayers becoming liable for a marginal tax rate of 53 per cent, thanks to the misalignment between the Scottish higher rate of tax and the 12 per cent rate of National Insurance.

The Institute for Public Policy Research (IPPR) Scotland has recommended a ‘social renewal supplement’ on higher earners. This would involve lowering the threshold for the higher rate of Scottish Income Tax to £40,000 from 2022, in order to fund additional public spending.


4.2 Property taxation

4.2.1 Land and Buildings Transaction Tax

The SNP will retain the current rates and bands of LBTT over the duration of the next parliament. The party has also committed to reviewing the Additional Dwelling Supplement.

The Scottish Conservatives have proposed permanently increasing the starting threshold for LBTT to £250,000, similar to the temporary increase introduced last summer in response to the pandemic, but which ended in March 2021. They would also give councils the power to create local LBTT discount schemes and, like the SNP, propose a review of the Additional Dwelling Supplement.

The Scottish Greens favour using the LBTT regime to target reliefs on housing co-operatives and would review the taxation of vacant and derelict land to incentivise development.

There is no mention of the LBTT regime by name in the Scottish Liberal Democrat or Scottish Labour manifestos.

Reform UK would return Scotland to the UK Stamp Duty Land Tax regime, but with the tax only levied on transactions worth more than £750,000.

4.2.2 Council Tax 

Local taxation provides the greatest scope for tax reform in the next Scottish Parliament. There is acceptance across parties that the existing system of Council Tax is in need of reform.

The SNP, who were first elected in 2007 on a promise to abolish Council Tax, have renewed their subsequent commitment to making the system fairer, without providing specifics on what this would entail. In the meantime, they have proposed increasing the age of liability for the tax to 22, and have committed to establishing a Citizens Assembly to review the tax (see below).

The Scottish Conservatives say that reform or revaluation of Council Tax is only possible with cross-party support and that they will not support change unless this is in place. They also want any proposals for reform – if they were agreed – to be put to voters at the next Scottish election, effectively postponing decisions for the duration of the next parliament.

Scottish Labour support the replacement of Council Tax with a system linked to property values and the ability to pay. They have proposed a review of local taxation more generally to look at the possibility of ‘optional’ local levies such as the tourist tax (see below). The manifesto also notes that any Council Tax freezes proposed by central government must be ‘fully funded’.

The Scottish Greens have said that they would replace Council Tax with a new residential property tax ‘related to actual…rather than outdated valuations’. They support giving councils the option to levy local wealth taxes as an alternative to a UK or Scotland-wide wealth tax and would look to give councils the power to introduce new local, environmental levies.

The Scottish Liberal Democrats would restart cross-party negotiations on local tax reform and support the replacement of the existing regime with one incorporating a land value system. They would also like to see the valuation process for Council Tax and Non Domestic Rates more closely linked to cut costs and improve efficiency.

The view from think-tanks

The IPPR Scotland has called for better public debate on tax reform in Scotland, and highlighted the issue of Council Tax reform. Suggestions put forward by the body include larger tax increases for higher value properties and more support for families on low incomes. But the group has also called for ‘radical reform of local tax in Scotland’, mooting the phased introduction of a land value tax as a replacement for the existing system of Council Tax, and arguing for the creation of local carbon, land and inheritance taxes.

Reform Scotland has called for the full devolution of council tax (and business rates) to councils, arguing this would give local authorities the power to ‘enable decisions about local tax…taking into account local circumstances and priorities’.

The Institute for Fiscal Studies say the SNP’s policy to increase the age of liability for Council Tax to 22 ‘continues with a trend of greater universality in public service provision…rather than using means-testing to focus support on those with the lowest incomes’. They say Scottish Ministers have ‘ducked’ substantial reform to date but warn that reform will be ‘politically challenging’. They add that the Scottish Conservative position of opposing change until at least the next election is ‘absurd’ and ‘disappointing’.


4.2.3 Other property-based taxes

The Scottish Greens support the introduction of a ‘millionaires tax’, a 1 per cent levy that would be chargeable on a range of assets, including pensions and other forms of savings. Scottish Labour would seek to prevent the acquisition of land in Scotland by companies linked to offshore tax havens. Alba have suggested that they would support a land value tax.

The view from think-tanks

The IFS suggests that the Scottish Government has failed to use its powers over property tax to maximum effect. They accuse the government of having ‘ducked’ major reforms to the tax and suggest that it should be scrapped ‘and the revenue made up through an updated and reformed council tax’. The IFS describe the Conservative proposal to increase LBTT thresholds as ‘welcome’ but caution that the policy will benefit sellers rather than buyers.


4.3 Business Taxation (including Non-Domestic (Business) Rates)

The SNP’s policy on Business Rates in the new parliament will be to retain the small business bonus scheme and gradually reduce the value of the large business supplement over the course of the next five years.

The party wants to consider the feasibility of a higher poundage rate chargeable on companies registered in tax havens. There is also a commitment to explore the introduction of a digital sales tax. In 2017, the party had proposed an out of town levy on businesses operating primarily online, but this was scrapped amid opposition from business groups and the UK’s emerging plans for a digital services tax. The digital sales tax proposal has already attracted criticism from retail organisations.

The Scottish Conservatives would introduce a Non-Domestic Rates Reform Bill if elected to government. The party has promised a ‘wholesale’ review of the business rates system by the end of the parliament. In the meantime, the party would offer rates relief of 25 per cent to businesses in 2022/23, maintain the poundage rate freeze until the 2023 revaluation, and would support councils looking to provide rates exemptions for high street and town centre businesses.

Scottish Labour want to see business rates reductions for non-grocery ‘bricks and mortar’ businesses. They propose a 20 per cent reduction in 2022/23, supported by a 20 per cent increase in the rates paid by retail warehouses. The party would also establish a taskforce to look at options for taxing online retailers.

The Scottish Greens have proposed devolving powers to set, collect and offer reliefs for Non-Domestic Rates to local councils.

The Liberal Democrats would shift the burden of business rates from occupiers to owners in an effort to prevent ‘land banking’ and help high street businesses compete with online retailers. And they would provide councils with greater control over local taxation a part of a wider decentralisation agenda.

Reform UK would abolish business rates for all small and medium-sized businesses.

The view from think-tanks

The decentralisation proposals put forward by the Lib Dems, Greens and Conservatives chime with the proposals put forward by Reform Scotland to hand greater powers over taxation to councils.

In a pre-election briefing, the IFS said that the Scottish Government’s approach to business rates reform had ‘complicated’ the system by introducing a series of reliefs in the 2016-21 parliament. Its approach to the tax, IFS said, was in line with its approach of raising more from the well-off to protect the less well-off.

The IFS has also expressed concern that the Conservatives’ proposals for temporary reductions in business rates are unfunded beyond 2022-23. They also note that proposals for a wholesale review of the system will be informed by the outcome of a similar review in England, the outcome of which is unknown.

The IFS also suggested that Scottish Labour’s plan to cut rates for bricks and mortar businesses will ‘only be partially paid for by higher rates on warehouses’.


4.4 Other devolved taxes

4.4.1 Air Passenger Duty/Air Departure Tax

Although the devolved replacement for Air Passenger Duty (APD) - Air Departure Tax or ADT - has yet to be implemented, the SNP have pledged to review APD rates to ensure that, once devolved, the government’s approach to tax is aligned with their wider climate objectives. The party say that this could include higher rates of tax on more polluting forms of aircraft.

The Scottish Conservatives would ensure parity between UK and Scottish rates of APD/ADT. The Scottish Greens would replace the tax with a new frequent flyer levy. The proposal would see flyers exempted from their first return flight each year, with increasing charges the more flights they take.

Scottish Labour propose a regulatory framework for the taxation of Airbnb properties.

The Scottish Lib Dems also support the introduction of a frequent flyer levy. In contrast, Reform UK support the abolition of aviation taxes.

4.4.2 Scottish Landfill Tax

The Scottish Conservatives, as with APD, would seek to ensure parity between UK and Scottish rates of Landfill Tax. The Scottish Greens would replace Scottish Landfill Tax with a local waste disposal tax designed to disincentivise incineration and waste exports.

4.5.3 Workplace Parking Levy / Transient Visitor (Tourist) Levy

2019 agreement between the SNP and Scottish Greens led to legislation being proposed to introduce taxes on workplace car parking and tourism. Because of the pandemic, these have yet to be implemented. The Scottish Conservatives oppose the introduction of the Transient Visitor (Tourist) Levy. Scottish Labour would include the tourist tax in a review of local taxation (see above) but are committed to abolishing the Workplace Parking Levy. The Scottish Greens are committed to introducing both taxes in the new parliamentary term.

4.5 Further tax devolution

The SNP has called for the devolution of VAT, full powers over income tax and control over National Insurance.

The Scottish Greens also support the ‘full devolution of tax powers’ to the Scottish Parliament and ‘will make formal requests to legislate in these areas’. They add that were Scotland to be independent, it ‘would have the power to tax consumption of luxury goods, carbon emissions from corporations and the wealthiest in Scotland’. Some of these themes can be found across the range of tax policies proposed in their manifesto.

The party also supports the introduction of a national wealth tax, but acknowledge that this would not be possible without the consent of the UK government. That is why their manifesto also includes proposals for a local wealth tax, to be levied by councils.

The Greens support the ‘partial replacement’ of UK Corporation Tax with a carbon tax that is tied to the country’s climate change targets, although the form this would take is not addressed in the manifesto. They would also levy a one-off windfall tax on businesses that have profited during the pandemic, and would end subsidies for the oil and gas industry, both policy areas currently reserved to the UK level.

Alba propose replacing UK Corporation Tax on the offshore oil industry with a ‘Wellhead Production Tax’, the receipts from which would be used to fund low carbon investments.

Reform UK want to end VAT on domestic fuel, cut Corporation Tax and National Insurance contributions for employers, and abolish inheritance tax on estates worth less than £2 million. The party also proposes a 3% delivery tax on online firms. These policies appear to be UK-wide and not focused solely on Scotland.

The view from think tanks

The IFS is wary of VAT devolution, warning that ‘significant additional administrative costs’ would only be worthwhile if a noticeably different system from the rest of the UK was developed.

The IFS has also noted that calls for the devolution of powers over National Insurance, capital gains tax and the remainder of the income tax system could ‘(reduce) the scope for tax avoidance…address inefficient and unfair differences in tax treatments between different forms of income’ but the exercise of these powers would ‘create many losers as well as winners’.

Reform Scotland has also made a number of suggestions for the tax system in Scotland. In the last 18 months, it has called for the devolution of Corporation Tax powers to Holyrood in order to attract businesses to Scotland and produce more higher-rate taxpayers. It supports the devolution of VAT to Scotland and has backed calls for the devolution of fuel duty and vehicle excise duty so that they can be abolished and replaced by a system of road user charging.


4.6 Tax processes and structures

The concept of deliberative democracy, or Citizens’ Assemblies, is one that has increased in prominence in Scotland in recent years. Both the SNP and Scottish Greens have proposed Citizens’ Assemblies on taxation, with the former proposing an assembly on the future of Council Tax and both proposing one on the taxation policies of an independent Scotland ahead of any future independence referendum.

The Scottish Conservatives have promised a cross-party commission aimed at improving parliamentary processes. Although this measure does not specifically mention oversight of tax matters, the party’s manifesto acknowledges that ‘many powers over tax and welfare’ have yet to be devolved despite being legislated for. Scottish Labour has proposed a similar review of parliamentary structures, aimed at ensuring parliament can better hold government to account.

Alba pledge ‘reform (of) our entire system’ of tax in the event of independence and the Alliance for Unity want to establish an independent commission on the future of tax in Scotland to make recommendations on ‘optimal’ tax rates.

By Chris Young