Withholding tax exemption for Scottish Government bonds
Published 28 October 2026
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Who is likely to be affected
The Scottish Government and holders of certain Scottish Government bonds.
General description of the measure
The measure will remove the obligation on the Scottish Government to deduct sums representing income tax from interest payments on certain bonds.
Policy objective
To align the tax treatment with market expectations for sovereign-style debt.
Background to the measure
The Scottish Government has powers contained in the Scotland Act 1998 to issue bonds subject to Treasury approval. Under current rules they would be required to deduct sums representing income tax from interest payments on such bonds.
Detailed proposal
Operative date
The measure will have effect from 28 October 2026.
Current law
Current law is included in chapter 5 of part 15 Income Tax Act 2007.
Proposed revisions
Section 893 Income Tax Act 2007 will be amended to include bonds issued under section 66(1A) of the Scotland Act 1998 in the definition of ‘gross-paying government securities’.
Summary of impacts
Exchequer impact (£ million)
| 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 | 2030 to 2031 | 2031 to 2032 |
|---|---|---|---|---|---|
| nil | nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer impact.
Macroeconomic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure may impact individuals who hold certain Scottish bonds. This measure will not impact family formation stability or breakdown.
Customer experience will remain broadly the same.
Equalities impacts
This measure may apply to individuals regardless of their protected characteristics. HMRC does not hold data that it can use to assess whether there are any disproportionate impacts to protected groups.
Administrative impact on business including civil society organisations
This measure is expected to have no impact on businesses or civil society organisations.
Operational impact (£ million) (HMRC or other)
There are no operational impacts.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
Consideration will be given to monitoring this measure through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, contact Mark Lafone, Financial Products and Services Team by telephone on 03000 585 613 or by email at mark.lafone@hmrc.gov.uk.