The Carbon Compass: monthly news insight

Incremental Change, Practical Implications

February has brought a series of targeted updates across tax and pensions. None are revolutionary in isolation, but collectively they reinforce a consistent message: staying informed and proactive remains essential.

Scottish Budget 2026/27

The latest Scottish Government Budget confirms further divergence in income tax bands north of the border.

The starter (19%) and basic (20%) rate bands will increase, offering modest support for lower earners. However, the intermediate (21%) band will narrow, and higher, advanced and top rate bands remain frozen.

With thresholds effectively tightening further up the income scale, fiscal drag continues to be a factor for many Scottish taxpayers. For business owners, higher earners and those drawing pension income, careful income planning and use of allowances will remain increasingly important.

Sole Traders and Landlords - Making Tax Digital

From 6^th April 2026, more than 860,000 sole traders and landlords with income above £50,000 will move into the first phase of Making Tax Digital for Income Tax.

Affected individuals will need to:

• Maintain digital records using recognised software
• Submit quarterly income and expense updates to HMRC
• Complete an end-of-period finalisation

These quarterly submissions are not additional tax returns, but they do represent a meaningful administrative shift. For those not yet prepared, the remaining lead time should be used to review accounting processes and software capability.

Pensions and Retirement Reform

Several important developments have emerged across the pensions landscape.

Reforms to the Local Government Pension Scheme (LGPS) aim to address structural causes of the gender pension gap. Changes coming into force in April include improved recognition of unpaid parental leave, equalisation of survivor benefits, and removal of the age cap on certain lump sum payments. Greater transparency through statutory gender pension gap reporting will also be introduced.

Separately, the government has responded to the Ombudsman’s findings on communication of State Pension age changes affecting women born in the 1950s. While communication was criticised, no financial compensation will be offered.

Finally, the Financial Conduct Authority has updated its Value for Money (VFM) proposals for workplace defined contribution pensions. A unified framework, including forward-looking performance metrics and a four-tier rating system, aims to improve transparency and drive consolidation of underperforming schemes. Although implementation remains some way off, this signals a continued focus on governance and measurable outcomes.

Final Thoughts

This month’s updates reflect a broader theme: incremental reform rather than sweeping overhaul. Tax thresholds, digital compliance requirements and pension governance standards are all evolving gradually, but with tangible impact over time.

As ever, financial planning is less about reacting to headlines and more about maintaining flexibility. Regular review ensures strategies remain aligned with both regulatory change and long-term objectives.

If any of the above developments may affect you or your business, we are always happy to discuss how these changes fit within your wider financial plan. Contact us on 0131 220 0000 or enquiries@carbonfinancial.co.uk

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action. Tax and Estate Planning Services are not regulated by the Financial Conduct Authority. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.