Future of council tax in Scotland: consultation

1. Introduction

This consultation paper sets out a range of options for how the council tax system in Scotland could be updated and improved. It is aimed at individuals, households, communities, and organisations across the country who have an interest in how local services are funded and how council tax affects them.

Council tax has not been fundamentally changed or updated since its introduction over 30 years ago. As property values and local circumstances have changed, questions have grown about whether the system still works as intended.

This paper presents a series of illustrative models and possible changes to how council tax is calculated, with supporting evidence set out in a report produced by the Institute for Fiscal Studies. We are inviting views to help understand how people feel about these options, what matters most to them, and how the system might better reflect property values and household circumstances today.

This consultation forms part of a broader programme of work which is seeking to build consensus on reforms to council tax. Your response will help inform future decisions about the shape and direction of council tax reform in Scotland.

1.1 Background to Council Tax Reform Engagement

Council tax reform has been the subject of significant analysis and debate in Scotland over the past two decades. Different reviews and working groups have looked at possible changes. The most significant recent piece of work was the Commission on Local Tax Reform.

The Commission on Local Tax Reform was set up in 2014, jointly by the Scottish Government and the Convention of Scottish Local Authorities (COSLA), and included representatives from the Scottish Labour Party, Scottish Green Party, Scottish Liberal Democrat Party and Scottish National Party, working alongside experts in public finance, law, housing, welfare and equalities.

The Commission looked at several possible alternatives to council tax. The Commission concluded that the existing council tax system should be reformed with a fairer, more progressive, and more locally empowering system. It also said this new system should include regular revaluations, so it stays up to date over time. While it did not recommend a specific structure for a new system, it concluded that a domestic property tax should remain part of the local tax system, but that it should be more progressive.

The Commission’s work has continued to shape how people think about council tax and what a better system could look like. Many of its ideas are still central to the discussion today. However, while the Commission helped set out the landscape of local taxation and a case for change, building political agreement on the next steps has proved more difficult in practice.

In 2018, a motion to replace council tax was not carried by the Parliament, demonstrating that replacing council tax is challenging without a consensus or prevailing view on how to reform the system. Subsequently, cross-party talks were convened to identify a replacement that could be supported by Parliament. The talks were paused at the beginning of the COVID 19 pandemic and were not resumed.

In 2021, the Programme for Government committed to establish a working group, engaging with COSLA, to oversee the development of engagement on council tax reform. In December 2022, Scottish Ministers convened the Joint Working Group on Sources of Local Government Funding and Council Tax Reform. This group forms part of a broader new partnership with local government and is co-chaired by Scottish Ministers and COSLA.

The Joint Working Group recognised that while there is agreement across the political spectrum on the need for reform, there are disparate views on the nature of reform. The group agreed that jointly, COSLA and Scottish Government should work towards building a consensus on a single approach. Subsequently, the Scottish Government published Scotland's Tax Strategy, which committed to producing and publishing a shared process for building consensus on reform early in 2025.

On 11 February 2025, the Scottish Government and COSLA announced the Programme of Engagement to support their shared commitment to long-term council tax reform.

A central part of this programme has been the development of a clear and robust evidence base. Independent analysis was commissioned by the Scottish Government, and has been undertaken by the Institute for Fiscal Studies (IFS), providing detailed insight into the effects of potential reforms.^[1] This analysis is intended to support open, informed discussions with the public and stakeholders across Scotland.

This consultation forms a key part of the programme. It sets out a range of illustrative models and invites views on how the council tax system in Scotland could be improved. This includes options for making it more up to date, easier to understand, and better aligned with current property values, while continuing to support the essential local services people rely on.

The findings from this consultation, and the wider public engagement during 2025, will contribute to future considerations in the Scottish Parliament on the future of council tax.

1.2 Council Tax Funding and Resources

Council tax is a local tax on domestic properties in Scotland. It is paid by most households, with over 2.5 million chargeable dwellings^[2], and helps to fund a wide range of important local services, including schools, social care, roads, libraries, and waste collection.^[3] In 2025–26, council tax is expected to raise over £3 billion for councils across the country.^[4]

Over recent years, council tax income has made up around 19 percent of the total general funding available to local government, approximately similar to income from non-domestic rates (NDR) – a property-based tax charged to businesses and the public and third sectors. The largest share of local government funding - around 65 percent - comes from the General Revenue Grant (GRG), which is paid by the Scottish Government. The rest comes from other local income sources such as taxes, fees and charges.^[5]

Source: Provisional Outturn and Budget Estimates (POBE 2025), Scottish Government

The money raised from council tax is kept in full by each council.^[6] Council tax is an important source of income for local councils. The local services, and the net expenditure for those services is set out in Figure 2 below.

Source: Provisional Outturn and Budget Estimates (POBE 2025), Scottish Government; HRA – Housing Revenue Account, Scottish Government

Ensuring that this funding system remains fair, balanced and sustainable is an important part of any changes to how council tax works, and is therefore vital to these public services.

1.3 Council Tax is Charged on Homes

All homes are placed into one of eight council tax property valuation bands, from Band A to Band H.^[7] These bands are based on what the property would have been worth on 1 April 1991, a date known as the market reference point.^[8] The valuation of each home into the property bands, is carried out by independent local Assessors, who maintain the Valuation Lists for each council area.^[9]

Each of Scotland’s 32 local authorities is responsible for setting the Band D rate in their area and for managing the administration of council tax. This includes issuing bills, collecting payments, and applying any discounts, exemptions or reductions. While the system is defined by national rules, it is operated locally, which means that the amount paid by households in the same band can vary depending on where they live.^[10]

The amount a household pays depends on several factors:^[11]

• The valuation band assigned to the property (e.g. a home in Band A will have a lower council tax charge than a similar home in Band D)
• The Band D rate set by the local council
• Any discounts, such as the 25 percent discount for single adult households
• Any exemptions, such as for student households, or reductions

Although the banding system has not changed since council tax was introduced in 1993, some adjustments were made in 2017 to increase charges for properties in Bands E to H.^[12]

The bands themselves are fixed nationally, but each council decides how much to charge for Band D. The tax charged for the other bands is set using fixed ratios in relation to Band D.^[13]

The table below shows the current band structure and average tax charges across Scotland for 2025–26.

A data table showing the share of properties in each council tax band and gross bills

Source: Council Tax Base (CTAXBASE), Scottish Government; Council Tax Assumptions (CTAS), Scottish Government.

Share of dwellings in each band (2024-25) and average bills (2025-26) calculated using data from the Scottish Government Council Tax Datasets

Over time, the link between a property’s value and the tax it is charged has weakened. As all valuations are still based on prices from 1991 (called the market reference point), many properties are now in bands that no longer reflect their current market value. This has led to concerns that the system is unfair, because two properties of the same value can find themselves charged very different council tax bills, even within the same local area.^[14]

Furthermore, the system is often described as regressive, meaning that people in lower-value homes tend to pay a higher share of their property’s value in tax than people in higher-value homes.^[15] In 2015, the Commission on Local Tax Reform^[16] highlighted how the original multipliers - set out in the 1992 Local Government Finance Act – resulted in properties in Band H paying three times as much council tax as a property in Band A despite the fact that the Band H properties were estimated to be worth, on average, fifteen times the value of properties in Band A.^[17] The Council Tax Reduction (CTR) scheme aims to reduce the impact of council tax for those who are least able to pay, and makes the tax less regressive.^[18]

The CTR scheme supports households on lower incomes, and provides means-tested assistance. Almost 460,000 households (around 1 in 5 homes) currently receive help through CTR, and many of these households receive full reductions.^[19]

1.4 Council Tax Collection

How much council tax a council collects depends on several factors. These include the tax rate set by the councils, the number of homes in the area, and how many of those homes fall into each valuation band. Across Scotland, just under three-quarters of all chargeable homes are in Bands A to D, but the mix of property types varies widely between areas. For example, in Na h-Eileanan Siar, 89% of properties are in Bands A to D, while in East Renfrewshire, the figure is only 43%.^[20]

As a result of this variation, the council tax system works alongside the General Revenue Grant to help ensure councils receive funding that reflects local needs. The grant is distributed using a formula that considers many factors, including the number and type of properties in each council area. In 2017, that formula was adjusted to reflect changes made to the charges for Bands E to H, so that no council would be disproportionately affected.^[21] If further changes are made to the way council tax is charged, similar adjustments could be made to the grant system to ensure the benefits of the policy are shared equally across all councils.

1.5 Occupation, Property Value, and Ability to Pay

1.5.1 Council Tax Payment (Who Pays)

Council tax is a tax on domestic property and is typically paid by the household living in the home, known as the occupier.^[22] In owner-occupation, the council taxpayer is the property owner. In rented homes, it is typically the tenant who pays the bill.

Given that the occupier is typically liable to pay the council tax bill, the tax can be seen as a charge on the person living in the home, rather than as a tax on property or housing wealth. This perception can make the connection between council tax and property value appear weaker.

1.5.2 Tax Incidence (Who Bears the Cost)

However, the way council tax is structured can influence how people make decisions about housing. If council tax levels influence how buyers or renters view the overall cost of a property, this may in turn affect decisions about how much to pay or what rent to charge.^[23]

Over time, markets adjust. Buyers and sellers, and renters and landlords, factor the total costs - including council tax - into their decisions. These adjustments relate to what economists call the incidence of the tax - the difference between who pays the tax in practice and who ultimately bears its economic burden.^[24]

These effects depend on how buyers, renters, and landlords respond to changes in council tax. In principle, if a property comes with a higher or lower council tax bill, buyers may factor that into what they are willing to pay. In practice, the extent of this depends on local housing conditions, such as demand, supply, and property types.^[25]

Similar dynamics may occur in the rental market. If council tax rises, landlords may reduce rents slightly to keep properties affordable. If council tax falls, rents may rise over time. These adjustments are not guaranteed, but they highlight how council tax can influence market behaviour and reinforce the distinction between who pays the tax and who ultimately bears its cost.^[26]

1.5.3 Examples of Market Adjustment (Capitalisation and Rents)

For example, when someone is buying a home, the level of council tax may influence how much they are able to pay. This is because council tax becomes part of the total cost of occupying the property, alongside mortgage repayments and other household expenses.

If council tax is expected to be high, a buyer may offer slightly less for the property to stay within their overall housing budget. In this case, part of the tax burden is passed back to the seller through a lower sale price. However, if the seller is also buying another property in Scotland, the effect may be offset if lower council tax is already factored into the price of their new home. This process is known as capitalisation.^[27]

Similar dynamics can apply in the private rental sector.^[28] Although tenants typically pay the council tax bill, landlords may take total occupancy costs into account when setting rents. If higher council tax makes a property less affordable for tenants, landlords may be unable to charge as much in rent. This would mean that a portion of the tax burden shifts from tenant to landlord, particularly in areas with competitive or price-sensitive rental markets.

These effects will vary by area, depending on the local housing market, the type of property, and the balance of supply and demand.^[29] While not guaranteed, these adjustments show how the overall impact of council tax is shared between different people in the housing system.

1.5.4 Trade-offs in Tax Design: Wealth vs Ability to Pay

These effects highlight a deeper challenge in designing any property-based tax – ‘how to balance housing wealth and the ability to pay’. There is an important balance to strike when designing any property-based tax. A more progressive system, where higher-value properties are charged more, may better reflect differences in property value and housing wealth. However, this approach must also account for the fact that those who own a valuable property do not always have a high income.

Some households, for example pensioners or long-term owners, may own high-value homes but have limited or fixed incomes.^[30] Furthermore, ownership structures vary, and the amount of equity that individuals hold in their home can differ greatly. This makes it more difficult to design a system that is both equitable in principle, and affordable in practice.

The Council Tax Reduction (CTR) scheme helps address this issue by providing means-tested support to low-income households.^[31] While CTR helps with affordability, it does not change the structure of the tax itself and therefore does not fully resolve the tension between taxing property and supporting households based on income.

These issues have advised the approach and considerations in this consultation paper, including the illustrative models and mitigations presented. They aim to balance fairness, transparency and practicality, while recognising the range of household and market conditions across Scotland.

1.6 Purpose of this Consultation – Fairness and Reform

The Joint Working Group on Council Tax Reform, co-chaired by the Scottish Government and COSLA, is leading a programme of engagement to explore options for long-term reform of the council tax system in Scotland. This consultation forms a key part of that programme.

The purpose of this programme of engagement is to support informed public discussion and help build consensus on how the council tax system in Scotland could be improved over time.

While previous efforts to reform council tax have faced political and practical barriers, the current joint work between the Scottish Government and COSLA - supported by analytical and public engagement work - reflects a renewed commitment to building consensus for change. The views gathered through this consultation will help shape future debate and support wider policy consideration by the Scottish Parliament.

1.7 Scope of Engagement

This consultation invites views on a range of potential changes to the current council tax system in Scotland. Specifically, it explores how the system could be made fairer, more responsive to property values and more supportive of those facing affordability challenges.

The key areas under consideration include:

• Updating the market reference point (currently based on values as at 1991) to reflect current market values and modernise the tax base.
• Exploring approaches to revaluation, including localised revaluation where band thresholds could differ by council area to reflect local housing markets.
• Introducing new council tax bands at the top and bottom of the scale, to ensure the system is more progressive and proportionate, and to smooth the differences between tax rates of consecutive bands.
• Considering transitional protections, such as phased implementation, reductions or deferral options, to help households adjust to any changes in their bills.

The primary focus of this consultation is on reforming the council tax system, although broader reflections on principles of fairness, accountability and local taxation are also welcomed as part of this dialogue.

1.8 Analysis and Assumptions

To support this consultation, independent analysis was commissioned by the Scottish Government and carried out by the Institute for Fiscal Studies (IFS).^[32] Their work provides the main evidence base for the estimates of potential impacts from illustrative reforms presented throughout this paper. The IFS developed and tested several reform scenarios using up-to-date household and property data, including potential adjustments to band structures, relative tax rates, and options for transitional support. Their analysis also includes the likely effects of these changes across different income groups, age groups, and regions of Scotland.

All of the options presented in this consultation are designed to be revenue neutral. This means that, on balance, the total amount of money raised through council tax across Scotland would remain more or less the same, even if some households’ bills change. In other words, reform is not about increasing or reducing how much tax is collected overall but about redistributing who pays how much, so that council tax better reflects differences in property values and household circumstances.

All estimates being made with the assumption that reforms would aim to be revenue neutral also provides a clearer picture of how different options would affect households in practice. It helps support open and transparent discussion, while reflecting that this consultation is not aiming to raise more money overall from taxpayers but to make council tax work better in the future.

The IFS household-level analysis and modelling also assumes that grant funding from the Scottish Government would be fully adjusted to reflect that councils would expect to raise different amounts of council tax locally under the new system. This implies that each council would not lose or gain financially due to council tax reform.

Redistribution of council tax through grant funding is a matter for local government and is contingent on other factors and choices that do not feature in this consultation. The analysis presented in this consultation principally focuses on the potential impact of the illustrative reforms. It is reasonable, however, to assume that a discussion between local authorities and Scottish Government about grant funding would be necessary if there is wide support for reform.