Scotland’s ability to introduce a wealth tax is being held back by constitutional limits set by Westminster, according to a new report that lays out just how restricted Holyrood’s financial powers really are.
The report makes clear that any attempt by the Scottish Government to target the wealthy through new taxation would require careful manoeuvring around the rules that govern what Scotland is and isn’t allowed to do with its tax powers. In short, it is not as simple as Holyrood deciding it wants a wealth tax and then going ahead and introducing one.
Scotland’s devolved tax powers are significant in some areas but they have clear boundaries. Income tax rates and bands for Scottish residents can be set by Holyrood, and that has already led to Scotland having a different income tax structure from the rest of the UK. But wealth taxes are a different beast entirely. Taxes on assets, investments, and accumulated capital largely remain reserved to Westminster, meaning the Scottish Parliament cannot simply legislate its way into that territory without bumping up against the limits of devolution.
The report highlights that this creates a frustrating situation for those in Scotland who want to see a more progressive tax system that goes beyond income. Wealth inequality in Scotland, as across the UK, has grown considerably in recent decades. Property values, pension pots, and investment portfolios have ballooned for those at the top, while many ordinary Scots have seen little of that growth translate into their own financial security. For politicians and campaigners who want to address that gap, the current constitutional setup is a serious obstacle.
One of the key issues is that many of the taxes which would typically form the basis of a wealth tax, things like capital gains tax or inheritance tax, are controlled by the UK Government. Scotland has no power to introduce its own versions of these or to top them up in the way it can with income tax. That means any Scottish wealth tax would have to be designed from scratch using the limited powers available, which significantly narrows the options on the table.
There is also the question of what powers Scotland could theoretically use. The Scotland Act does give Holyrood some room to create new taxes, but that process requires approval from Westminster and is far from straightforward. The report suggests that even if the Scottish Government came up with a creative approach to taxing wealth using existing or new devolved powers, it would face legal and political challenges at every turn.
Council tax is one area where Scotland does have control, and it has long been criticised for being an outdated and regressive system that does not reflect the actual value of properties or the wealth of those living in them. Reform of council tax has been discussed for years but has proven politically difficult. Some see a reformed property tax as one realistic route towards something resembling a wealth tax within devolved powers, but even that faces pushback and complexity.
The land and buildings transaction tax, which replaced stamp duty in Scotland, is another lever that Holyrood controls. It has been used to apply higher rates on additional properties and higher-value purchases, which does place a greater burden on wealthier buyers. But this is a long way from a comprehensive wealth tax and only captures wealth at the point of a transaction rather than on an ongoing basis.
For the Scottish Government, the report adds to a growing body of evidence that devolution, while giving Scotland meaningful control in some areas, stops well short of providing the full fiscal toolkit that would be needed to pursue a radically different economic model. Supporters of independence have long argued this is precisely why Scotland needs full control over its own finances, while unionists tend to point to the block grant and shared UK resources as reasons why full fiscal autonomy is unnecessary or even risky.
What is clear from the report is that the debate around wealth taxes in Scotland is not just an economic or political one. It is fundamentally a constitutional question about where power sits and who gets to decide how wealth is taxed. Until those boundaries shift, either through further devolution or independence, Scotland’s options remain limited no matter what any government at Holyrood might want to do.