Council tax - revaluation and reform: key findings summary

Revaluation and reform of council tax in Scotland: key findings summary

This report summarises key findings from research on the design and impact of potential reforms to Scotland’s system of council tax. The research was commissioned by the Scottish Government and conducted by the Institute for Fiscal Studies (IFS).^[i] The full report is available here: Revaluation and reform of council tax in Scotland: design considerations and potential impacts

Council tax is levied on the occupiers of residential property and helps to fund the provision of local services such as schools, social care, refuse collection, libraries and leisure centres.^[ii] Properties are currently placed in one of eight tax bands (A–H) based on their estimated value as of April 1991 – 34 years ago.^[iii] 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 (before any discounts) is regressive with respect to property value; it is a lower percentage of property value for higher-value properties.^[iv] The small number of relatively wide bands also means large jumps in tax liability at band thresholds, especially for higher tax bands, so properties with very similar (1991) values either side of a threshold can face tax bills differing by many hundreds of pounds per year.^[v]

In this context, we have analysed five illustrative reform options.

• 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 properties. 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 bills while again 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 This serves as a benchmark system which fully addresses all the issues mentioned above: out-of-date values, regressivity with respect to property value, and jumps at thresholds.

Details of the modelled bands and tax rates can be found at the end of this report. Each of these systems is only illustrative and other options for reform (including no reform) are possible. But by modelling specific reforms we can estimate the effects of different design choices on different parts of Scotland, different types of households, and the rental and sale value of properties.