The UK Budget offered partners in Scottish law firms little clarity. The chancellor promised “breathing space now and fresh hope for the future”. For these professionals, the breathing space is on hold until the Scottish Budget on 3 December.
Tax Powers Remain in Holyrood
The UK Budget contained no measures aimed specifically at law firms. Partners in Scotland are taxed as individuals, not as a company. Tax powers on earnings rest with the Scottish Parliament. The same applies to rental income. Landlords in England, Wales, and Northern Ireland will face a four per cent tax increase on property income from April 2027. Scottish partners with let property are spared for now.
Holyrood will receive an extra £600m through the Barnett formula. This gives the Scottish government a choice to make in December. Many other tax changes will apply on both sides of the border. Tax on savings income rises by four per cent across the UK from April 2027. Partners with significant interest income may need to review their investments.
Capital Allowances and Reliefs
Changes to investment reliefs present a mixed picture. The chancellor highlighted the 25 per cent corporation tax cap and full expensing as business stability measures. However, these benefits are unavailable to partnerships, because full expensing is only available to companies and most law firms are structured as partnerships.
A key change is the cut in the main writing down allowance from 14 per cent to 12 per cent from April 2027. This will slow relief on systems, fit-outs, and equipment already in a firm’s capital allowance pool. While a lot of capital spend will qualify for 100 per cent upfront relief via the Annual Investment Allowance, larger firms or firms undertaking a large fit-out may see reduced relief.
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On the other hand, the government will increase a different Capital Allowances Relief (First Year Allowance) from 40 per cent to 50 per cent for spend from 1 January 2027. Firms planning significant capital expenditure should discuss with their advisors at an early stage to ensure that relief can be maximised.
Impact on Cashflow and Business Exit
From April 2029, partners making self-assessment payments on account will pay smaller, more regular amounts through the year instead of two large instalments. That changes how firms manage drawings and tax retentions, but HMRC have yet to publish details of how the new system will work.
For partners looking to sell their business interest (on retirement or otherwise), the change to Business Asset Disposal Relief will be significant. From 6 April 2027, the lifetime limit on gains taxed at 18 per cent is cut from £1m to £500,000, reducing the maximum saving from £60,000 to £30,000. The new Founders’ Relief, at 10 per cent on up to £10m, is reserved for high-growth, innovative companies, and a traditional law firm is unlikely to qualify.
As employers, firms face a National Living Wage of £13.21 an hour from April 2027 and a UK-wide pledge to stop non-compete clauses in employment contracts holding back people who want to move jobs. Finance teams face mandatory VAT e-invoicing and direct debits for VAT and PAYE from April 2029.
Taken together, the Budget did not have any big tax rises on law firms, but it will impact partners’ cashflow, provide less capital gains tax relief on exit, and add more administration. For Scottish partners, the rest of the story arrives on 3 December.
