Revaluation and reform of council tax in Scotland: design considerations and potential impacts

Executive summary

This report considers the design and impact of potential reforms to Scotland’s system of council tax, a tax levied on the occupiers of residential property to help fund the provision of local services. Properties are currently placed in one of eight tax bands (A – H) based on their estimated value as of April 1991 – 34 years ago (Scottish Assessors, 2025; Scottish Government, 2025a). Properties in Band H were worth (in 1991) at least 8 times those in Band A, but face a tax rate 3.675 times higher, meaning the tax is regressive with respect to property value. The small number of relatively wide bands also means large jumps in tax liability at band thresholds, especially for higher tax bands, so households with very similar (1991) property values just either side of a threshold can face tax bills differing by many hundreds of pounds per year.

In this context, this report analyses five illustrative reform options, all of which involve properties being revalued based on up-to-date values (see Section 2):

• A pure revaluation, which maintains the current eight-band structure, and places the same proportion of properties nationally into each band as currently, but based instead on up-to-date values.
• A revalued more differentiated 12-band system, which allows for finer gradation in tax rates across the property value distribution. This includes at the very bottom and very top of the property value distribution, slightly reducing regressivity.
• A revalued less regressive 12-band system, which goes further to reduce the regressivity of the current tax rate structure.
• A revalued less regressive 14-band system, which further differentiates tax rates while, like the previous system, also reducing the regressivity of the current tax rate structure.
• A revalued continuous proportional system, which applies a tax proportional to properties’ estimated values. This serves as a benchmark for a system which addresses all the issues mentioned above – out-of-date values, regressivity with respect to property value, and jumps at thresholds.

We consider impacts across different parts of Scotland, on different types of households, and on the rental and sale value of properties.

Methodology and modelling considerations

For our geographical analysis we estimate the Q3 2024 value of a large sample (over 50%) of properties in Scotland using a ‘hedonic regression’ approach based on data on property characteristics (from the Scottish Assessors and Energy Performance Certificates), local area characteristics (such as deprivation, rural/urban classification and the statistical data zone a property is located in), as well as transaction values for properties that have actually transacted (from Registers of Scotland). These updated values allow us to estimate how different council tax reform options would affect different properties, and after weighting the data to be representative for all properties in Scotland (using Scottish Assessors data), for different parts of Scotland and the country as a whole.

For our household analysis we use a combination of self-reported values for owner-occupied properties and estimated values (again estimated using a ‘hedonic regression’ approach) for rental properties to estimate Q3 2024 property values for a sample of Scottish households drawn from the Understanding Society survey. Again, these updated values allow us to estimate how different council tax reform options would affect different properties and, after weighting the data, different types of households and the country as a whole.

It is important to note that changes in council tax bills under a reformed system would depend not only on changes to the structure of council tax itself, but also on whether and how grant funding to local councils was adjusted and on the tax rates chosen by councils in light of these changes. The choices that would be made on these issues are currently unknown. Therefore, when analysing impacts across council areas and neighbourhoods, we focus on changes in bands and in the tax rates applied to different bands relative to a Band D property in the same council area, as opposed to changes in tax bills. Currently, for example, Band D properties are assigned a relative tax rate of ‘1’, Band A properties 0.667 (and so face a gross tax bill of 66.7% of a Band D property) and Band H properties 2.45 (and so face a gross bill of 245% of a Band D property). We term these gross relative tax rates.

Our analysis of impacts across household types does include estimated changes in council tax bills, under the assumptions that grant funding is approximately fully adjusted in response to the changes in councils’ tax bases (how much revenue they would raise if they set the average Scottish Band D tax rate) under the modelled reform systems and that councils do not change their spending in response. Impacts may differ if grant funding was adjusted by less than that, or if councils spent more/less in response to changes in their tax bases and grant funding, but impacts by household type are less sensitive to assumptions about grant funding than impacts across councils and local areas.

Key findings on the impacts of reform

1. The average property value is estimated to have increased by 357% across Scotland as a whole since 1993. But increases range from 168% in Aberdeen City to 500% in East Lothian, meaning that the relative value of different properties in different parts of Scotland has changed significantly. Property values also range widely, with average (mean) property values estimated at £141,000 in East Ayrshire and West Dunbartonshire, compared with £330,000 in East Renfrewshire and £335,000 in Edinburgh, and £211,000 for Scotland as a whole, as of Q3 2024.

2. We estimate that under a pure revaluation, half of properties would remain in the same band, with around a quarter moving up one or more bands and another quarter moving down one or more bands. Far more would move up bands in areas that have seen the biggest increases in property values: for example, we estimate that almost two-thirds would move up one or more band in Edinburgh City. Conversely, in Aberdeen City we estimate that almost two-thirds would move down one or more bands. More properties are estimated to move up bands in the Lothians, as well as the Highlands and Islands, while more are estimated to move down bands in North East and South West Scotland.

3. Under a continuous proportional system, changes in the gross relative tax rates that apply to properties would depend not only on how their values have changed since 1991 (as under the pure revaluation), but also on their absolute values, with low- and middle-value properties typically seeing falls and high-value properties typically seeing increases. Changes under such a reform would also often be larger. The average gross relative tax rates faced by properties in more affluent areas would increase substantially, while those in more deprived areas would fall substantially. For example, we estimate that the average gross relative tax rate faced by properties in the least deprived tenth of neighbourhoods would increase by a third, while those in the most deprived tenth of neighbourhoods would see an average fall of a third. We estimate that 81% would see an increase in their gross relative tax rate in Edinburgh City, while 91% would see a fall in Aberdeen City.

4. The effects of the 12-band differentiated, 12-band less regressive and 14-band less regressive systems, which move part of the way towards a proportional system, would lie between these two benchmark systems. For example, we estimate that under the less regressive systems, average gross relative tax rates would increase by 14% in the most affluent tenth of neighbourhoods and fall by 11% to 14% in the most deprived neighbourhoods. Similar numbers of properties would see increases and decreases as under the continuous proportional system, but the scale of changes would be smaller.

5. A pure revaluation would update the property values used to assign council tax bands. This would bring the system closer in line with today’s housing market, meaning that two properties in the same council with the same value would no longer face very different tax bills just because they were worth different amounts in 1991. However, it would mean little change in average net tax bills across the income distribution, or across different demographic groups. This is because while different groups (e.g. low- and high-income households) live in properties with different absolute values, the values of their properties are estimated to have changed in similar ways on average since 1991.

6. A continuous proportional system would create much bigger changes, with our estimates showing falls in average net tax bills for households in the bottom four-fifths of the income distribution, younger adults (under 45), single pensioners (aged 65 or above), disability benefit recipients and renters. Conversely, average bills would increase for households in the top fifth of the income distribution, older working-age adults (aged 45 to 64), pensioner couples, and owner-occupiers. We estimate that substantially more households would see a reduction in bill of £50 a year or more (46%) than an increase (24%), but the average increase among those seeing an increase (of at least £50) would be almost twice as large as the falls among those seeing a fall (£683 versus £363).

7. The estimated impact of the 12-band differentiated system on average bills for different groups is very similar to that of the pure revaluation. This reflects the fact that its main effect is to split existing bands up into a greater number of bands, rather than to reduce the regressivity of the system (although it does that to a small extent).

8. The estimated impacts of the 12-band and 14-band less regressive systems are very similar to each other – the extra two bands in the 14-band system allow for greater differentiation in bills at the bottom and top of the distribution but have little effect on the overall distributional impact. Impacts would lie in between the pure revaluation and continuous proportional system. For example, we estimate that average net bills would fall by around £50 a year for the second-lowest-income fifth of households, and increase by around £100 a year for the highest-income fifth. We estimate that there would be little change under a pure revaluation and a fall of £130 and rise of £270, respectively, under the continuous proportional system.

9. There is strong theoretical and empirical evidence that changes in property taxes affect private-sector property rents: a lower tax bill reduces overall housing costs and so pushes up demand and rents (Oates, 1969; Caldera Sánchez and Johansson, 2011; and Drayton, Levell and Sturrock, 2024). This means that it is owner-occupiers of low-value properties, social tenants, and the landlords (rather than tenants) of low-value private rental properties that are likely to be the biggest beneficiaries of less regressive systems in the long run. Conversely, tenants of high-value private rental properties are likely to be at least partly insulated from higher tax bills once rents adjust.

10. There is also strong evidence that changes in property taxes are reflected in property values, although the scale of these effects is uncertain (Capozza, Green and Hendershott, 1996; Palmon and Smith, 1998; and Høj, Jørgensen and Schou, 2018). It is clear from our analysis, though, that changes would be biggest at the very bottom and top of the property value distribution, where bill changes would be greatest under less regressive council tax systems. For example, in our middle scenario for the effect of tax on prices, under the 12-band and 14-band less regressive systems, we estimate that properties worth £60,000 would increase in value by an average of 6–8% as tax bills are reduced. Conversely, we estimate that properties worth £500,000 would fall in value by 3–5% as tax bills are increased. Impacts would be smaller for a pure revaluation and bigger for the continuous proportional system.

Transition and mitigation

As with Wales’ 2005 and planned 2028 council tax revaluations (Welsh Assembly Government, 2004; Welsh Government, 2024), transitional reliefs could be used to ease the introduction of a revalued and reformed council tax system. Longer-term mitigation measures could also be designed and implemented for the small number of low-income households seeing higher bills under a more differentiated, less regressive system (although it is worth emphasising that most low-income households would see little change or lower bills).

The type and cost of transition reliefs and mitigation measures needed will depend on the nature of the reforms to council tax undertaken. Under a pure revaluation, for example, similar transitional arrangements to those used in Wales’s 2005 revaluation could be used: capping the annual increase in bill at the equivalent of moving up one band in a given year, for properties moving up two or more bands. Under the other reform options considered, though, where the structure of the bands themselves would change, such an approach would not provide support to households who remain in the same band but see an increase in their bill. Phasing in changes in bills via annual cash-terms caps instead could provide support to such households. We estimate that:

• Approximately 4% of properties across Scotland would move up two or more bands under a pure revaluation.
• A cap on annual increases in bills of 10% or £300 (whichever is smaller) per year (excluding any year-to-year increase in councils’ Band D tax rates) would cover between 23% and 33% of properties in its first year under the various modelled reform systems. It would cost around £100 million in its first year under a pure revaluation, and £200 million under the 12-band and 14-band less regressive systems. Between 2.5% and 5.5% of properties would still be capped in year 4.
• A higher cap of 25% or £600 (whichever is smaller) per year would cover between 7% and 16% of properties in its first year, depending on the reform. First-year costs would be around £50 million under a pure revaluation and £130 million for the 12-band and 14-band less regressive systems. Fewer than 0.1% of properties would still be capped in year 4.

There is therefore a clear trade-off between the scale and coverage of the scheme on the one hand, and its cost on the other.

In designing mitigation measures for those who might struggle to pay their council tax bill (even with transitional relief), two key groups can be distinguished: the ‘cash-poor, asset-rich’, which we have defined as those who own high-value properties but have low current incomes and/or liquid assets; and the ‘cash-poor, asset-poor’, which we have defined as those who rent (or own but have little equity in their homes) and therefore have both low income and low wealth.

For the former, a tax deferral scheme could be implemented to prevent hardship in the short term but enable the appropriate amount of council tax to be collected in the long term. Such a scheme would allow owner-occupiers meeting certain criteria to borrow from their council to cover the cost of council tax in the short-term, with the bill (and accumulated interest) settled at a future date. In designing such a scheme, decisions would need to be taken on which groups would be eligible, the share of their bills that could be deferred, the maximum duration of deferral, and the interest rate to charge on deferral loans.

For those we have defined as ‘cash poor, asset poor’, who would not already be covered by the means-tested council tax reduction scheme (CTRS), one option would be to retain, in some form, the specific support scheme introduced in 2017 to support low-income households in properties in bands E to H (Scottish Government, 2018). Easing the more general CTRS means test – reducing entitlement to support by 10p rather than 20p for each extra £1 of income above the income limit for maximum support – would extend entitlement to 200,000–300,000 more low- to middle-income households and increase the entitlements of about 200,000 existing claimants, at a cost of between £130 million and £150 million a year.