Until now, a landlord in Scotland has paid the same income tax on rent as everyone else pays on their salary. Westminster has just put up the tax on rental income in England, and handed Holyrood the power to set its own rate here for the first time.
On 3 December, the Scottish Government tells us what it will do with that power. Whatever it chooses, someone pays.
How we got here
Last November, Rachel Reeves created a separate set of income tax rates for property income in England, Wales and Northern Ireland, two points above the normal rates from April 2027. Last week John Healey, in his first Budget as Chancellor, doubled it before it had even started. From April, landlords outside Scotland who own in their own name will pay 24%, 44% and 49% on rental profit.
Scotland was left out, because income tax on rent is already devolved here. Instead, Holyrood has been handed the power to set its own property rates. Rates, mind, not bands. In January’s Budget the Scottish Government left the door open to matching the first two points. Now Jenny Gilruth has to choose: match all four, match two, or leave things as they are.
She has a month.
Doing nothing is not the neutral option
The argument you are about to hear is about fairness. Landlord groups will say they are being bled dry, and the Office for Budget Responsibility has already warned that the UK changes risk fewer rental homes and higher rents. Others will say landlords are the one group who can afford it. Both will be loud. Neither is how this gets decided.
It gets decided by the fiscal framework, the deal that sets how Scotland’s block grant is adjusted for the taxes Holyrood controls. The mechanism is a seesaw. When Westminster puts up a tax that is devolved here, the deduction from Scotland’s block grant grows with it. If Holyrood does not raise the equivalent, the money simply is not there.
So leaving property rates alone is not standing still. It is a spending cut by another name, in a year when Gilruth says the UK Budget has already left her around £650 million short in real terms and she faces a £720 million income tax reconciliation on top.
Nobody has published what the property line alone is worth to Scotland. Be wary of anyone quoting a confident figure before 3 December.
I spent last winter in budget negotiations with ministers. When the cupboard is this bare, every line that raises money without touching the rate on wages gets a second look. A tax on landlords is the rare rise a finance secretary can make without a headline about working families.
Why Scotland is not England
Copying Westminster sounds simple. It is not, because Scotland starts from a different place.
A Scottish higher-rate taxpayer already pays 42% on rental profit today. Add four points and that becomes 46%. At the top rate, 48% becomes 52%. More than half of every pound of profit, before a single repair. Somewhere around there, the question of whether to keep letting answers itself.
Then there is the border. What you pay depends on where you live, not where the flat is. A landlord in Edinburgh with a flat in Carlisle pays whatever Holyrood decides. A landlord in Carlisle with a flat in Edinburgh pays the new UK rates. Set the two far enough apart and people will notice, and their accountants will notice first.
Companies are untouched either way, because they pay corporation tax. Every point added to the personal rate is another nudge towards incorporation, with the transfer costs that come with it.
A market already on the move
This decision does not arrive in a calm market. Scotland’s renters and landlords have had four years of intervention. Rents were frozen in 2022, then capped at 3% for sitting tenants, until the cap ended in March 2025.
Rents did not stop rising in that time. They rose for people moving home instead. Newly agreed rents climbed by around 8% a year while controls were in place, and official figures put annual rent growth in Scotland at a peak of 11.7% in August 2023. The cap protected people who stayed put and passed the cost to everyone who moved.
Today the picture looks almost calm. Rent growth has slowed to around 1% a year, and new-let rents have been falling in real terms. That is the number people will quote to say there is no problem.
The slower number to watch is supply. Registered landlords in Scotland fell from almost 240,000 in January 2022 to around 230,000 this spring. Landlords are still selling faster than they buy, and most of the homes they sell go to owner-occupiers rather than back into the rental market. Their costs have only gone one way: mortgages dearer than a few years ago, insurance, repairs, and energy-efficiency upgrades still to come. Rent Control Areas under the Housing (Scotland) Act could follow from 2027.
Add a higher tax on top and the likely result is not a sudden collapse. It is a slow shrink. A smaller private rented sector, owned more by companies and larger landlords than by the one or two flat owners who make up most of it now. Fewer homes for the people who need to rent: students, young workers, people moving for a job. And the risk that when demand picks up, it meets a market with less room to give, and new-let rents jump the way they did in 2023.
There is another side. Every rental home sold to an owner-occupier is someone’s first house, and a smaller rented sector is not automatically a worse housing system. But it is a different one, and nobody has chosen it on purpose. It is happening by accumulation, one budget line at a time.
Where it is really decided
3 December is when you find out what the Government wants. It is not when the matter is settled.
Scottish income tax rates are set by the Scottish Rate Resolution, which MSPs vote on in the new year before the Budget can complete its passage. This is a minority government. It needs votes from somewhere, and a separate rate on rental income is precisely the sort of lever that moves in those talks. One party will want it higher. Another will want it at zero. The rate that ends up in law may be neither the one in the Finance Secretary’s statement nor the one in anyone’s manifesto.
The bigger picture
Step back from landlords and this is really a story about how devolution works in practice.
Holyrood has far more tax powers than it did a decade ago, and they are real. But this decision shows their limits. The timing, the scale and the shape of the choice were all set in London. Scotland can follow, partly follow, or pay for not following. That is a choice, but a narrower one than the word “devolved” suggests.
It also blurs accountability. If rents rise in Scotland next year, people will look to Holyrood, even though the original decision was made elsewhere. A finance secretary can end up answering for a tax rise she was, in effect, handed.
And it puts two of the Government’s own aims at odds. Ministers want more homes and steadier rents. They also need revenue, and rental income is one of the few places left to raise it without touching wages. Both cannot be maximised at once. This decision will show which one gives way.
Expect more of this. Each time Westminster singles out a type of income to tax differently, Scotland faces the same seesaw. Property income is the first. It is unlikely to be the last.
Doing nothing is the most expensive option on the table. It is just not landlords who would pay for it.
Jamie Greene was a Member of the Scottish Parliament from 2016 to 2026. He served as his party’s economy and finance spokesperson and as deputy convener of the Public Audit Committee, and sat on the Education, Justice, Transport and Digital committees. He has negotiated concessions through the Scottish Budget, most recently enhanced rates relief for hospitality in 2026-27. Before Parliament he worked in broadcast and digital media.