This item was published during the term of a previous administration that ended in April 2007
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Councils gain discretion over tax on second homes
27/12/2004
Proposals to give local authorities discretion to reduce the current 50 per cent discount on council tax on second homes and long-term empty properties have taken another step forward.
The legislative Order which will give councils the new power has been laid in the Scottish Parliament. It will come into effect at the start of financial year 2005-06.
Associated guidance - drafted in consultation with the Convention of Scottish Local Authorities, Communities Scotland and the Scottish Federation of Housing Associations - has been issued to all local authorities setting out the detailed arrangements for the new powers.
Any additional income generated by cutting the discount will be retained locally and used to provide new-built affordable social housing.
Minister for Finance and Public Service Reform Tom McCabe said:
"The laying of this Order is another step forward and should ensure these additional new powers are available to local authorities from the start of financial year 2005-06.
"This is excellent news and will allow decisions to be taken at the local level in the best interests of communities.
"The additional income is no panacea, but I believe it has potential to provide a genuine boost to the supply of affordable housing for local people.
"Second home owners contribute strongly to local communities in many areas. But second homes and properties which have been left vacant over a number of years can cause problems for local areas, including limiting the supply of affordable housing for local people."
At September 1, 2003, there were around 66,500 dwellings - the majority of which will be second homes or long-term empty dwellings - on the valuation list entitled to a 50 per cent council tax discount.
Potentially around £24 million could be raised if all councils chose to reduce these discounts to 10 per cent.
One of the recommendations in the Local Government Committee's Report on Local Government Finance was that full council tax should be levied on second homes.
The Executive sought views on this through a consultation paper and decided that from the start of financial year 2005-06, local authorities will be given discretion to reduce or retain the discount between 10 per cent and 50 per cent.
Local authorities will be able to take local circumstances fully into account.
They will be able to vary the discount within their area, e.g. to target only those areas where second homes are a particular problem or to differentiate between second homes and long-term empty properties.
The Executive has decided that a minimum 10 per cent discount is necessary so that owners will have an incentive to tell their local authority that their property is a second home or long-term empty property.
The additional income generated from reducing the discount for second homes and long-term empty properties can then be identified.
This additional income will be retained locally and routed through Registered Social Landlords for the provision of new-built affordable social housing in areas determined by the local authority.
It was clear from the responses to the consultation that one of the main concerns regarding second home ownership was the impact on local housing prices.
Directing the extra money generated from reducing the discount towards increasing the provision of affordable housing will help towards alleviating this problem.
The extra revenue can also, in certain circumstances, be allocated towards the provision of specific elements of the water and sewerage infrastructure required by the new homes, and the purchase of land for future RSL affordable housing projects.
The Executive has also decided to retain the mandatory 50 per cent discount for certain second homes and long-term empties to ensure a consistent approach is adopted throughout Scotland. These properties are:
purpose-built holiday homes - f or these types of properties, second home owners are not competing in the same market as local house buyers
second properties owned or rented by those living in tied accommodation - this would include members of the clergy, farm-workers and publicans who are required to live in the licensed premises where they are tenants.
The Executive does not want higher council tax bills to discourage those living in tied accommodation from owning or renting second homes for their future security.
vacant dwellings which subsequently undergo extensive repair after sale - currently, dwellings which are undergoing major repair works are exempt for up to 12 months from the last occupation day. After that they pay 50 per cent council tax.
This means that if someone buys a property that has been vacant for over a year and undertakes major repair works that prevent it from being occupied they will be faced immediately with a council tax (and water and sewerage) bill.
It is felt reasonable to grant a new owner a 50 per cent discount for a further period of six months if the property is undergoing or requires major repair work to render it habitable, or is undergoing structural alteration, before opening it out to local authority discretion.
dwellings vacant for less than 12 months - currently, vacant properties are exempt from council tax for the first six months and then pay 50 per cent thereafter.
Increasing this after six months may place undue financial pressure on some owners, particularly those who are genuinely trying to deal with a vacant property.
There are many reasons why a property might be vacant (and unfurnished). Some may be local authority properties, some may be those which are proving difficult to sell. It has therefore been decided that it is reasonable to maintain the 50 per cent discount for the second six months and allow the local authority discretion to start after 12 months.