FIFE COUNCIL
Policy & Resources Committee
9 January 2003
Agenda Item No……
COUNCIL TAX ON SECOND AND LONG TERM EMPTY HOMES
CONSULTATION PAPER
1.
Introduction
1.1
The Scottish Executive has issued a consultation paper inviting views
on proposals to reduce or remove the existing 50% Council Tax
Discount for second and long term empty properties.
2.
Background
2.1
The report of enquiry into Local Government Finance published earlier
this year recommended that, in the interest of equity, the full council tax
should be levied on second homes. The Executive has decided to
consult on this issue and has widened it to include long term empty
properties.
3.
Legislation
3.1
The council tax legislation currently prescribes that furnished
properties, which are no-ones main residence, qualify for a 50%
discount from council tax. In addition, properties which are unfurnished
and are no-one's sole or main residence receive a maximum
exemption from council tax for 6 months and, thereafter, receive a 50%
discount.
3.2
The current grant distribution arrangements provide that account is
taken of the relative ability of each Council to raise council tax. As
such, areas, which have a large number of second and long term
empty homes, receive compensating central grant support. As a result,
the impact of such properties on the council tax base is spread across
all Councils.
4.
Case for Change
4.1
As stated above, the issue of removing the discount on second homes
was raised within the Local Government Committee's enquiry into
Local Government Finance. It is suggested that giving such discounts
on second properties is often perceived as unfair as, perhaps, their
owners are generally able to afford full council tax and should do so.
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4.2
Alternatively, it is suggested that second homes can have a significant
impact on the nature and sustainability of local communities as second
home owners can contribute strongly to certain sectors of rural
communities. However, high demand for second homes may affect
property prices in some areas, potentially making property less
affordable for local residents. Also, properties that have been empty
for long periods can deny homes to those in housing need and can be
a drain on local resources.
5.
Options for Change
5.1
The consultation paper outlines a number of options for change.
These can be summarised as follows:1. The removal of the 50% discount on second homes, defined as
furnished homes that are no-ones main residence.
2. Removal of 50% discount on long-term empty homes, defined as
unfurnished homes that are no-ones sole or main residence
(subject to those that are otherwise exempt).
3. The removal of the above discounts could be mandatory or
discretionary.
4. Additional income raised from the removal of the above discounts
should be taken into account in the grant distribution arrangements
and, therefore, any additional income will be shared by all
Councils. Alternatively, such income should be retained by
individual Councils and discounted in the grant distribution formula.
6.
Areas for Consideration
6.1
In principle, the council tax system is a property tax, which takes
account of a personal element and operates on the basis that these are
charged on a 50/50 split. This explains why, subject to any prescribed
exemptions, second and long term empty homes receive a 50%
discount i.e. only the property element is charged. Any change to the
legislation amending these level of discounts does contradict the
principles of the tax, which, to date, have been readily accepted by the
public.
6.2
There will be wide variations in the impact of volume of second homes
in various areas. It is understood that in Highland, for example, there
are a large proportion of second home owners relative to other
Councils. In Fife, the volume of such properties is not considered to be
a particular issue. However, whilst this consultation paper has been
prepared, no detailed research has been carried out into precisely the
number of properties that would be affected by the removal of discount
as proposed. Currently, some 60,000 properties receive a 50%
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discount in Scotland. However, most of these properties are receiving
a discount because of reasons other than the fact that they are second
or long term empty homes. Whilst the consultation paper suggest that
there is a potential income of some £25m which could be raised from
second and long term empty homes, these figures must be questioned
without further research being carried out. There is no requirement, at
present, for Councils to be notified that a property is a second home.
In addition, those who are actively trying to sell their properties having
purchased a new home, will form a large proportion of those receiving
a discount (having received an initial 6 months exemption).
6.3
The consultation paper recognises that removing the 50% discount
could cause hardship for a number of individuals and suggests that
Authorities could also be given a power to grant relief on a case by
case basis. Currently, Councils have no powers to reduce or waive
payment of council tax for individuals and the introduction of such a
scheme for second or long term empty home owners could be seen as
discriminatory to the many households on low income which are having
significant difficulties making their payments, for which the Council
would not have this remedy.
6.4
In a similar vein, the consultation paper suggest that a reduction or a
removal of the discount on second or long term empty homes might
require the introduction of exemptions e.g. those in tied
accommodation, bringing more complexity to the system with the need
for additional administration.
6.5
The introduction of a discretionary scheme could allow Councils with a
relatively high proportion of second and long term empty homes to
remove or reduce discounts in line with locally agreed policy.
7.
Financial Implications
7.1
The removal of discount on second and long term empty homes would
clearly provide additional revenue from council tax. If the scheme was
mandatory, the amount of additional revenue for each Council will
clearly be dictated by the volume of such homes in each area. On this
basis, it does seem more equitable that such additional income be
included in the grant distribution arrangements and shared by all
Councils. On the contrary, if the scheme were to be discretionary, then
it would be, perhaps, more appropriate that Councils should retain the
additional income they derive.
7.2
As stated above, the consultation paper has been issued without
detailed research into the actual number of houses, which would be
affected by the proposed change and, therefore, it is extremely difficult
to predict the value of additional income. In Fife, it is expected that the
additional income would be minimal. However, the introduction of a
scheme, with the almost inevitable need for specific new exemptions
etc would certainly result in increased administration. In the event that
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additional income would be retained by each Council, there would be a
need for software changes, for which there would be a cost, which at
this point in time, could not be quantified.
7.3
In supporting the removal of these discounts Councils will need to
consider how they will identify second homes as there will be no
incentive for owners to declare them as such.
8.
Conclusions
8.1
The existing council tax system provides a simple mechanism whereby
properties which are no-ones sole or main residence receive a 50%
discount from council tax. The system is simple, straight forward and
easy to understand. There is a view, however, that the scale of second
and long term empty homes in particular areas affects the local
community in several ways and that the discount should be removed.
8.2
The removal of discount will provide additional revenue. However, this
cannot be quantified at this point in time with any degree of accuracy.
8.3
The removal of discounts, whether mandatory or discretionary, will
require additional administration and appropriate resources. These
cannot be quantified at this time although these should be much less
than the additional income that could be raised.
9.
Recommendations
9.1
Members are asked to agree that, in light of the issues raised in this
report, the Council advise the Scottish Executive that its preference is
for a discretionary scheme of discounts on second and long term
empty homes and that any income derived should be retained locally.
Brian Lawrie
Head of Finance and Asset Management
Finance and Asset Management Service
(Author - A Traynor Ext 3312)
Fife Council
North Street
Glenrothes
KY7 5LT
9 December 2002
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