A tax system out of sync is hurting Scottish estates
Scotland’s unique legal and tax position was once again overlooked in last week’s Budget, writes Donna Brennan
The Scottish Budget confirmed what many of us already suspected. Tax policy on income, wealth and property continues its path of imposing higher burdens on many Scots, and the landscape is becoming increasingly difficult to navigate.
While it was never likely that this Budget would tackle the more fundamental structural issues, it’s disappointing that once again, Scotland’s unique legal and tax position has been overlooked. Scottish families must plan for the future under a system that doesn’t fully recognise our legal distinctiveness.
Inheritance tax is a UK-wide regime, but it’s built on assumptions that don’t align with Scotland’s separate legal system. Succession law, legal rights, and the distinction between heritable and moveable property all mean that Scots face decisions and liabilities that simply don’t exist in the same way elsewhere.
With the UK government confirming a cap on Agricultural and Business Property Relief from 2026, we’re likely to see a growing number of Scottish estates fall into new tax territory, even with the revised £2.5 million threshold.
Among the headline claims was the assertion that 55 per cent of Scots pay less tax than the rest of the UK, it is argued. In truth, the savings to low earners are less than £40 a year. Meanwhile, more than 1.5 million Scots have been paying significantly more income tax than their counterparts elsewhere in the UK for some time, a number that will only increase with fiscal drag. At the same time, the Scottish government is progressing plans to introduce new council tax bands on homes valued over £1 million, effectively a form of mansion tax.
Taken together, these changes represent a squeeze on those families and business owners who are asset-rich but liquidity-poor. Farms, family businesses and homes that have been passed down through generations are increasingly being caught by tax rules that don’t take their structure, or their story, into account.
Will this growing burden lead to an exodus of talent and business elsewhere? Will tunnel vision hinder growth in Scotland and reduce overall tax take? This seems to be a risk the Scottish government is prepared to take.
What’s really needed is a more joined-up approach between tax and the law. It’s not enough to tweak relief thresholds or introduce new bands without addressing the broader challenge of ensuring the system works for Scotland as it is, not just bolted on to a UK-wide policy.
Families, business owners and advisers need confidence that they can plan without facing conflicting rules, unpredictable changes, or unintended liabilities.
As things stand, there’s a real risk that families will either delay planning or be forced into decisions that don’t reflect their long-term intentions.
Tax policy should support stability and growth, not undermine it. If we want to encourage people to invest in Scotland’s future, we need to ensure they’re not punished for doing so.
Donna Brennan, partner and private wealth lawyer at law firm Weightmans
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