Looking ahead to key Scottish regulatory developments due in 2026

The team at Dentons explore crucial regulatory developments in Scots law in 2026 including employment, tax, energy and real estate.

Employment Law

By Laura Morrison, Managing Practice Development Lawyer at Dentons in Edinburgh

The Employment Rights Bill / Act

2026 will see the first wave of changes under the Employment Rights Bill come into force assuming the Bill becomes law as expected in the near future. 

Key developments include the introduction in April 2026 of day-one entitlements to statutory paternity and parental leave, alongside a doubling of the cap on protective awards for failures in collective consultation. 

Statutory Sick Pay (SSP) entitlement is also due to change from April 2026, with the government planning to remove the lower earnings limit and waiting days. This will ensure all workers receive the lower of the flat rate or 80% of normal earnings.

New protections relating to fire and rehire, third-party harassment and an enhanced duty to take allreasonable steps to prevent sexual harassment are due to take effect in October 2026, increasing employers’ compliance obligations and potential exposure in tribunal claims. 

The time limit for lodging any tribunal claim will also increase from three to six months from October 2026.

The hospitality and tourism sector, a major part of Scotland's economy which is characterised by high volumes of young workers, seasonal staff and variable hours roles, will feel several changes acutely. SSP reforms will increase payroll costs, as many workers currently earning below the lower earnings limit will become eligible for paid sick leave. 

The longer tribunal time limit may increase HR complexity and require more robust record-keeping.

The enhanced duty to prevent sexual harassment, and reintroduction of liability for third-party harassment, are also particularly relevant for customer-facing environments such as hospitality and tourism, where employees routinely interact with the public. 

Employers will need to ensure they provide staff training, have in place clear reporting processes and carry out proactive risk assessments ahead of the October 2026 changes.

Although not due to come into force until 2027, Scottish employers in sectors reliant on zero hours workers, such as hospitality and tourism, and agriculture, will need to factor the forthcoming changes into their workforce planning in 2026. Employers will be required to offer guaranteed-hours contracts that reflect actual working patterns, with compensation for cancelled shifts.

Energy

By Mark Macaulay, projects partner and Roddy Cormack, senior construction associate, at Dentons in Glasgow

Cap and Floor regime

One of the most significant energy policy shifts affecting Scottish businesses – both energy companies and corporate buyers of power – in 2026 is the introduction of the UK-wide cap and floor mechanism for long-duration electricity storage (LDES). 

The scheme, which is due to start being introduced from Spring 2026, is designed to unlock major new investment in energy storage. It is especially relevant to Scotland, which has some of the UK’s strongest opportunities for pumped-hydro and large-scale battery projects.

Storage operators will earn revenue by buying electricity when it’s cheap, storing it, and releasing it back to the grid when demand is high. The floor guarantees these operators receive a minimum level of revenue. The cap limits excessive profits: if earnings go above a certain level, the surplus is returned to consumers through network charges. 

This balance reduces risk for investors while protecting households and businesses from overpaying.

With Scotland’s heavy reliance on wind power, storage plays a key role in smoothing out lulls in generation, reducing the need for expensive backup power and lowering the risk of network constraints. 

Over time, this should support more stable wholesale prices and, ultimately, more predictable energy costs for businesses.

Real Estate

By Brian Hutcheson, Real Estate partner at Dentons in Glasgow

Land Reform (Scotland) Act

Royal Assent for the new Land Reform (Scotland) Act is expected shortly after being passed by the Scottish Government in November 2025 (note: will need to check whether this has been received before publication and amend accordingly). It introduces new duties for owners of large landholdings, requiring management plans, community engagement and advance notice before sale, with powers to mandate subdivision of very large estates when they are sold. 

It also updates agricultural tenancy rules to promote fairness, transparency and sustainable land use across rural Scotland.

Property income tax 

The 2026-2027 Scottish Budget will be published on 13 January 2026. This will include the Scottish Government's response to the UK Government's 2025 Budget change to income tax, which introduced a new category of property income tax. This applied a 2% increase to current income tax bands south of the border, resulting in tax rates on property income of 22%, 42% and 47%. 

The current income tax bands for people in Scotland are 19%, 20%, 21%, 42%, 45% and 48%. The UK Budget informed us that the UK Government would engage with the Scottish Government to provide it with the ability to set property income rates in line with its existing income tax powers. 

We will therefore have to wait for the Scottish Budget before we know whether the highest earners in Scotland might be paying exactly half of the top slice of their property income in tax (48% + 2%). 

Whether Scotland will also see a "mansion tax" (High Value Council Tax Surcharge) replicated north of the border also remains to be seen.

Rent controls

By March 2026, secondary legislation confirming the scope of rent control exemptions under the Housing (Scotland) Act 2025 is expected before dissolution of the Scottish Parliament in March for the 2026 election. A further consultation is expected in January. 

Scottish Building Safety Levy

Publication of indicative rates for the Scottish Building Safety Levy is expected in June 2026. 

The levy will not come into force until 1 April 2028 after the Scottish Government announced a one-year delay to implementation. There will be no transitional provisions and developments receiving a completion certificate on or after 1 April 2028 are expected to be liable to pay. 

Energy Performance of Buildings

The new Energy Performance of Buildings (Scotland) Regulations 2025 will come into force on 31 October 2026. These will introduce a new style Energy Performance Certificate (EPC) and the validity period for EPCs will be reduced from 10 years to five years. 

A new approach will be adopted to measuring energy performance of non-domestic properties, which should make comparisons across the UK easier. While new EPCs will come in on 31 October, there are transitional provisions which provide for grace periods when an existing EPC can still be used. 

Tax

By Lorna McCaa, Tax Partner at Dentons in Glasgow

Property Income Tax 

See Real Estate section above.

Enterprise Management Incentive (EMI)

Following the UK Government's 2025 Budget, the following new limits will apply to EMI:

*This increased time limit can be applied to existing as well as new EMI grants without losing the tax advantages the scheme's offer (assuming the options granted are otherwise in line with the EMI legislation).

The changes to the EMI requirements follow the UK Government's previous reform allowing companies to update existing EMI and Company Share Option Plans agreements to allow employees to exercise their share options and trade the shares acquired pursuant to the exercise on the Private Intermittent Securities and Capital Exchange System platform without losing their tax-advantaged status.  

A new consultation – Tax Support for Entrepreneurs: Call for Evidence – will close on 28 February 2026.  

These rules will apply equally in Scotland.

Capital Allowances 

Prior to 2026, companies can claim full expensing (100% first year relief) and 50% first year relief on capital expenditure falling within the main rate and special rate pools respectively. 

This was initially set to expire on 1 April 2026 but was made permanent by the Finance Act 2024. These measures coupled with the £1 million annual investment allowance (which it was confirmed will not change) provide effective relief for companies incurring capital expenditure. 

Unincorporated businesses can make use of the annual investment allowance but are currently not entitled to the enhanced first year allowances detailed above. 

For capital expenditure which falls within the main rate but does not qualify for full expensing, writing down allowances have been available at a rate of 18% per annum to be offset against total trade profits. From April 2026, the main rate of capital allowances will be reduced from 18% to 14%, meaning that businesses will need to wait longer to obtain relief for main rate capital expenditure which does not benefit from these enhanced first year allowances (or covered by the annual investment allowance). 

However, the UK Chancellor announced that from 1 January 2026 a new 40% first year allowance will be introduced for main rate expenditure, which will be in addition to the full expensing rules described above, but crucially will also apply to unincorporated businesses. 

The new first year allowance will capture most main rate expenditure, including most expenditure on assets bought for leasing and will feature fewer restrictions compared to other first year allowances. This is a welcome addition for unincorporated businesses and companies incurring capital expenditure, but the reduction to the main rate allowance going forward may mean tax forecasts and financial planning may need to be revisited by those businesses which have historic capital allowance pools pre-dating the enhanced allowances and introduction of first year allowances. 

The special rate writing down allowance (which provides relief at a rate of 6% per annum) is unchanged. Additionally, the 100% first year allowance for qualifying expenditure on zero emission cars and electric vehicle (EV) charging points has been further extended to April 2027. 

All UK qualifying businesses can claim capital allowances, meaning that that reduced main rate of writing down allowances and new 40% first year allowance will apply in Scotland.

Changes to Capital Gains Tax (CGT) 

In a welcome move, the UK Government announced no further changes to the existing statutory rates of CGT in the 2025 Budget – 24% for higher or additional rate taxpayers and 18% for basic rate taxpayers.

However, as a reminder of previously announced changes, from 6 April 2026 the CGT rate applied to Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) will rise from 14% to 18%, narrowing the gap between the entrepreneurial and general rate of CGT. 

In addition to the previously announced changes to BADR and IR, from 6 April 2026, a new carried interest regime will apply, treating all carried interest as trading profits subject to income tax (up to 45%) and Class 4 NICs (2% on profits above the Upper Profits Limit). The amount of ‘qualifying’ carried interest subject to these taxes will be adjusted by applying a 72.5% multiplier, resulting in an effective tax rate of 34.075%.

The UK Government also announced that from 26 November 2025, UK shareholders that sell shares in their company to an employee ownership trust (EOT) will only be eligible to receive statutory CGT relief at a reduced rate of 50% (previously 100% CGT relief). 

These rules will apply equally in Scotland.

Gambling Tax

Following the consultation launched in April 2025, the UK Government has introduced a reform of gambling taxation. 

Under the new proposals, Remote Gaming Duty will rise from 21% to 40%, while duty on online betting will increase from 15% to 25%, targeting the most profitable segments of the industry. In contrast, no changes have been made to in-person gambling or to the taxation of horse-racing, which continues to operate under its separate levy arrangements. 

In addition, Bingo Duty will be abolished entirely from April 2026, simplifying the tax position for operators and supporting a sector viewed by ministers as lower risk. 

These rules will apply equally in Scotland.