A Fairer Way: Report by the Local Government Finance Review Committee

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Section 14: The Local Property Tax

Individual Property Valuations

1. In the previous section, we concluded that a banded property tax could not be reformed sufficiently to overcome its fundamental problems.

2. We recommend a root and branch reform of local domestic taxation, based on individual valuations of properties. We call our recommended model the "local property tax" or LPT. Under LPT, banding would be abolished and tax would be charged as a percentage of the capital value of each property. LPT would be payable by households occupying properties (whether as owner-occupiers or as tenants) and by the owners of second homes and unoccupied properties.

3. We considered whether the LPT should include an element of charging for services and concluded that it should be a tax and have no such element. Consequently, we concluded that there is no logical justification for discounts for single occupant households or on second homes. This issue is examined in greater detail later in this section.

4. Unlike the council tax, the LPT would have no arbitrary number of bands set at equally arbitrary thresholds, and no cliff-edge effects associated with these thresholds. Unlike the former domestic rates system, the LPT would be based on individual capital values, a concept with which most taxpayers are readily familiar.

5. A revaluation of domestic properties would be an essential requirement for the introduction of LPT. Thereafter, an integral feature of LPT is regular revaluations, to ensure that tax liability is based on valuations that are as up-to-date as possible. We discuss this in greater detail later in this section.

6. Results from our modelling suggest that in 2006-07 the LPT we recommend set at an average of around 1% of current market values would produce a more-or-less equivalent total yield across Scotland to the current council tax yield. So a house worth £100,000 would incur a bill of approximately £1,000. The LPT being levied as a percentage of the property value would be more progressive than is council tax at present, particularly for properties both at the bottom and at the top of the property ladder. A household living in a Band A home currently worth £40,000 and paying on average £750 in council tax would be liable for a LPT bill of around £400 in 2006-07. If a Band G house was now worth, say, £400,000, it would attract a bill of £4,000 under LPT, instead of a typical £1,880 bill at present. 217

Assessment Against Criteria

7. The LPT performs well against the criteria we are considering.

Macro-economic criterion

8. In terms of its effect on the economy, the LPT should have a greater effect than council tax on house prices, although the extent of this is unclear. Muellbauer and Cameron suggest it is likely that the reintroduction of a local property tax (albeit in the form of the old domestic rates) could reduce house prices in the long run perhaps by 15% 218 on average.

9. The introduction of LPT will mean that some properties will attract more tax liability than the current council tax and some less. This leads to the possibility that, other things being equal, house prices will change, either up or down, in response to the individual change to tax liability. Thus at the higher end of the market property prices may moderate whilst at the lower end they may increase.

10. A more progressive property tax theoretically could create an incentive for higher income earners to migrate to a lower-taxed region. As discussed in section10 in relation to a local income tax, if such "fiscal flight" occurred, it might have implications for the availability of skilled and enterprising people in high-tax areas. However, as indicated earlier, there appears to be little empirical evidence on fiscal flight.

Fairness-related criteria

11. Being more progressive than the council tax, the LPT would offer a reduction in tax liability for households in lower income deciles, with an increase in tax for households in higher income deciles. For example, households in income deciles 2 to 6 would spend between 3% and 5% of their equivalised net income before housing costs on a property tax (see Figure 14.1). The results for income decile 1 are counter-intuitive and may be due to unstable income or self-employment. At higher income levels, the LPT would be less regressive than the council tax (although, unlike council tax, no upper limit on liability has been proposed for LPT).

Figure 14.1: Share of net local property tax in equivalised net household income by income decile

image of Figure 14.1: Share of net local property tax in equivalised net household income by income decile

12. Further work by the University of Stirling to break down property tax by type of household indicated that households with two or more adults would typically benefit from the local property tax, while single adult families might lose out. This suggests that some single adult families occupy dwellings whose market price would exceed their current council tax valuation.

13. Overall, the modelling suggests (see Figure 14.2) that around half of households in Scotland should pay less tax under LPT than under council tax, while around two-thirds in all would be no worse off than at present.

Figure 14.2: Effect of a local property tax on households - winners and losers

image of Figure 14.2: Effect of a local property tax on households - winners and losers

14. Following discussion with DWP officials and receipt of legal advice, we would not expect eligibility for Council Tax Benefit to be affected by the proposed changes.

15. In terms of comprehensibility, LPT should be straight-forward for householders to understand. Taxpayers could estimate their tax liability as a specific percentage of the value of their home. They would not have to associate their home with a particular property band, nor would they have to understand how the banding system works.

Assessment and collection criteria

16. The LPT would be as difficult to evade and easy to collect as the council tax. In terms of costs, it would not be significantly more expensive to assess, and would be no more expensive to collect.

Yield-related criteria

17. The yield of LPT would be as stable, predictable and buoyant as council tax. Gross revenue to councils would remain unchanged. The overall consequence of a reduction in the LPT liability for benefit recipients would be a reduction in the amount of Council Tax Benefit payable in Scotland. However, because of the greater progressivity of a local property tax, the higher yields from the more valuable properties would offset this reduction.

Accountability and balance of funding criteria

18. The LPT would be identifiable as a local tax. As a component within the overall basket of UK and local taxation, the LPT would have the same characteristics as all property taxes in its ability towards altering the balance of funding.

Implementation criterion

19. The process of implementation should be straight-forward. In contrast to the complexity of introducing an entirely new tax, such as a local income tax, the framework for LPT is largely in place, although it would require a revaluation. Implementation issues are discussed further later in this section.

Possible Variants

20. The Committee discussed a number of possible variations to the general principle of a local property tax (including features of present council tax and new options). These include:

  • Exemptions;
  • Discounts and disregards;
  • Varying liability according to number of working adults;
  • Minimum and maximum payments; and
  • Differential treatment of second homes.

Exemptions

21. As indicated in section12, some properties are exempt from the council tax either indefinitely or for a limited period. There are a number of different categories of exemption, briefly as follows:

a. Indefinite exemptions

22. Occupied property. Examples of properties in this category are:

  • Dwellings that are solely occupied by students;
  • Dwellings that are the sole or main residence only of people under the age of 18; and
  • Dwellings that are solely occupied by the severely mentally impaired.

23. Unoccupied property. There are 11 different categories of property which are exempt on a without time limit basis. Examples are:

  • Unoccupied dwellings where the person liable to pay the council tax has moved to receive personal care;
  • Unoccupied dwellings where the person liable to pay the council tax has moved to provide personal care;
  • Unoccupied dwellings where the liable person is in prison (except for non-payment of a fine); and
  • Dwellings whose occupation is forbidden by law or impending compulsory purchase.

b. Time-limited exemptions

24. There are five categories of time limited exemptions (of varying lengths) which all apply to unoccupied property. Examples are:

  • Dwellings that are unoccupied and (except for dwellings owned and last occupied by a charity) unfurnished are exempt for up to 6 months;
  • New dwellings are exempt for up to 6 months as long as they remain unoccupied and unfurnished; and
  • Dwellings in need of substantial repair/reconstruction are exempt for up to 12 months from the last date of occupation.

25. We received a submission from the Central St Andrews Residents Alliance expressing concern about a shortage of affordable housing in St Andrews and arguing that the problem is so extreme the town's young people are forced to move elsewhere. A principal cause is an over-heated buy-to-let housing market. The Alliance argued that the cause of this is the council tax exemption for properties solely occupied by students. They further argued that this exemption in practice benefits landlords, through the application of market forces on the local housing market, rather than students themselves.

26. We also received a submission from Stewart Maxwell MSP suggesting that troops serving abroad should be exempt from paying the council tax. It was not clear whether Mr Maxwell had in mind a property exemption or a personal disregard.

27. We envisage the LPT as a property tax (albeit underpinned by the equivalent of the Council Tax Benefit scheme) rather than a property/personal hybrid tax, which the council tax is. Therefore, exemptions for certain categories of property would be compatible with LPT. All the current exemptions could consequently be retained or the opportunity could be taken to review them.

Discounts and disregards

28. As also indicated in section12, and reflecting the personal component of the council tax, a 25% discount is available for single person occupancy and a discount of between 10% and 50% applies to second homes (and long-term empty dwellings). The position of second homes is discussed below.

29. There are also 15 categories of person who are disregarded for the purposes of council tax. This means that the bill for the property is calculated as if the person disregarded was not there. Examples include students, student nurses, patients in residential care and certain care workers.

30. From an economic and logical standpoint, there are strong arguments for not applying across-the-board discounts or disregards to classes of person for a local property tax. Categories of person that qualify for discounts and disregards under council tax at present, such as single occupiers, are not inherently synonymous with inability to pay. In this respect, a particular household's lack of ability to pay a tax should be covered by an individual benefit or rebate. The use of blanket discounts or disregards for a particular category of persons reduces the size of the overall tax base and is not economically efficient.

31. If, as a result of the removal of discounts and disregards, overall expenditure on Council Tax Benefit increased in Scotland, then we understand that the Scottish Executive would be liable to compensate DWP for that additional expenditure. We also recognise that, where there is a strong correlation between a particular category of person and restricted ability to pay, it may be more cost-effective to apply a blanket disregard or discount than to subject households within the category to means-testing.

32. As indicated above, we conclude that there is no logical justification for any personal discounts or disregards in relation to LPT. However, we recognise that the decision about whether or not any such discounts or disregards should continue will ultimately be for Ministers to make.

Varying council tax according to the number of working adults

33. One suggestion that emerged from the GfKNOP research was that council tax should take "more account of the number of working people in each household", i.e. that those households with more than two working adults should face larger bills than they do at present. Anecdotal evidence from a number of respondents to our consultation included complaints that they were on a limited income and yet still had to pay as much in council tax as their neighbours with three or four working adults living in the same household.

34. Some 9% of households in Scotland contain three or more adults. 219 For these purposes, an adult is any person over the age of 16 and so this statistic will include, for instance, an elderly relative or a person aged over 16 in full-time study. Around 6% of households contain 3 or more working adults. 220

35. We calculate that the additional yield that could be raised from such a measure would be modest (a 25% surcharge on council tax bills from 9% of households might increase yield by around 2%). Although irrelevant in principle, the fact that this measure would provide little additional revenue in practice is worthy of note. The fairness of the measure would also be open to question. If the test is that larger bills should be paid by households with three or more working adults, this does not necessarily translate as households with relatively high ability to pay. If they are in higher-paid employment, then their household will already be contributing more towards the funding of their local authority, by paying more in UK income tax.

36. Such a measure would give a property tax some of the characteristics of a poll tax, liability for which depends largely on the number of adults residing in a home. This of itself might be unwelcome to many taxpayers. It also would require the introduction of more complex administrative arrangements. As council tax stands at the moment, households only have to apply to their local authority if they believe they are entitled to an exemption or discount. In other words it is in these taxpayers' own interests to inform their council of their circumstances. To introduce a higher payment for households of three or more working adults would require local authorities to compile and maintain a register of these households. Experience of the community charge suggests that these processes would be difficult and expensive to operate effectively.

37. In conclusion, we rejected this proposal. It is inconsistent with the principle of a property tax, would be administratively complex and disproportionately expensive to assess and collect.

Minimum and maximum payments

38. Given the wide range of property values across Scotland, there would be a very considerable variation between the highest and lowest local property tax bills. We understand from the SAA that, in 2005, values of properties sold across Scotland ranged from around £4,000 to £5 million. Under the LPT, a rate of 1% would produce an annual bill ranging from £40 to £50,000. We considered whether there should be minimum and/or maximum payments.

39. The argument for a minimum payment is that all households should contribute at least a pre-defined minimum amount towards the cost of local services. Those people on low incomes should be helped by the benefit system. A minimum payment would ensure that there was an appropriate tax burden on those who were able to pay.

40. This argument has some validity. Means testing is ultimately a matter of opinion as to whether all should be required to contribute with rebates for those who cannot afford to pay their proportionate share.

41. On balance we see insufficient justification for requiring a minimum payment under LPT. Such a measure would effectively introduce a form of poll tax, as well as undermining the progressivity of LPT.

42. In considering a maximum payment, we recognise that the spread of the value of properties in Scotland is not a normal distribution, as shown in Figure 12.1. There are relatively few properties above the value where a cap might be considered appropriate. There are two factors that are important in any change to the incidence of property tax in Scotland. The first is the possible macro-economic consequences resulting from an application of very high local property tax. The second is that the aggregate amount raised from high value properties would be insignificant.

43. A cap on the maximum could apply to either the valuation of property or the tax payable. The effect on a household's tax bill would be the same. A cap on valuation could reduce the work for Assessors, because they would not be required to provide exact values for properties in excess of the cap. The advantage of applying the cap to the tax payable is that the individual valuation of each property would retain flexibility for Ministers to alter the cap in years between revaluations.

44. An alternative to a cap would be a taper in the form of a reducing percentage rate above a certain valuation.

45. The Committee recognise the argument that it is important for the LPT to be perceived as "fair". Whether a cap at a high level undermines perceived fairness is a matter of personal political perspective. Decisions about whether or not minimum and/or maximum payments should be introduced are political judgments, and we therefore offer no firm recommendations on this point.

Treatment of second homes

46. Under council tax, owners of two or more dwellings received until 2005 a discount of 50% on homes other than their main residence. Local authorities now have discretion to apply a discount of between 10% and 50%.

47. The second homes discount under the council tax reflects both the personal element of this tax and the assumption that second home households will consume less of the local authority services. Discounts logically would be justifiable if they were applied to charges for (unused or lesser used) services. In relation to council tax, we received a number of expressions of support for the recent changes that allow the discount to be reduced to 10%. In oral evidence, Argyll & Bute Council argued that no discount at all should apply to second homes.

48. There is no logical reason why there should be any reduction in a property tax, as opposed to a reduction in a charge in respect of (unused) services. The Committee recommend that the LPT should be payable with no discount for second and subsequent homes.

Other Key Features and Consequences of LPT

49. Our detailed consideration of LPT takes account of issues surrounding:

  • Revaluations and the valuation process;
  • Making LPT easier to pay;
  • Equalisation; and
  • Timing and transitional arrangements.

Revaluations and the valuation process

50. Regular revaluation is an essential element of all property taxes and a local property tax cannot be introduced without revaluation. A property tax must accurately reflect relative differences in the values of homes throughout Scotland. If the price of all properties changed at the same rate, then it would not matter whether the property tax reflected house values of last year, ten years ago or fifty years ago. But they do not and a property tax based on outdated values is unfair. All revaluations create "winners" and "losers". However, so too does the failure to conduct revaluations, with the "losers" being those people who currently pay more than they would if up-to-date house prices were used to determine their tax. There is no compelling reason why council tax at this point of the first decade of the 21st century should be based on property values in 1991.

51. Both the Committee and the Scottish Parliament's former Local Government Committee ( LGC) (during its 2002 inquiry into local government finance) received strong statements of support for revaluation, particularly from local authorities and professional organisations like CIPFA and IRRV. Indeed, the LGC recommended (at para 49 of its Report) in favour of early revaluation.

52. There is strong support for an early revaluation and for regular revaluations thereafter. Local authorities' preference appears to be for a regular cycle of revaluations every five years, scheduled in the period between revaluations of business properties. The Scottish Assessors' Association ( SAA) recommended revaluations at least every 10 years, and saw merit in both non-business and business revaluations being conducted every 5 years on separate cycles. The concept of regular revaluation is also supported by RICS Scotland, ICAS, SRPBA, CBI (Scotland) and UNISON.

53. However, there is concern about revaluation from members of the public, apparently out of fears that it would be used substantially to increase council tax payable. This Report takes as given that the result of revaluation would be yield-neutral.

54. Research by Heriot-Watt University for the Scottish Parliament's former Local Government Committee suggested that property values in Scotland changed significantly between 1991 and 2002, with major regional variations in the pace of change. The University of Stirling work for us using the " MARTY" formula supports the continuing trend.

55. Business properties in Scotland are already revalued every 5 years for the purpose of assessing non-domestic rates.

56. Under LPT, we recommend that domestic properties should be subject to regular revaluations. Initially this would be every 5 years but the ideal would be to move to annual revaluation. The SAA suggest that that is an objective achievable in the relatively near term. The revaluation cycle should be underpinned by statute.

57. Routine regular revaluations are essential to protect the integrity and credibility of LPT. Over time they should reduce the sensitivity of members of the public, as they become more confident that the purpose of revaluation is to keep property values up-to-date and not to increase tax yield.

58. We understand from the SAA that a revaluation would include the following stages:

  • Assessment of property values on an "average condition" basis. Assessors would estimate changes in property values since the last revaluation. The Committee recommend that properties be valued on the basis that they are of "average condition." The Committee also recommend that internal improvements, such as a new kitchen or bathroom, and even external improvements which of themselves would not require planning permission to a property be ignored. This exclusion is designed to encourage householders to maintain their property in as good condition as possible without the need for internal inspections as a standard requirement.
  • Assessment of properties against revised values. Properties would be assessed on the basis of their deemed value on the "Antecedent Valuation Date", which typically precedes valuation itself by 2 years (although it is possible that this could be reduced to one year). SAA already holds data about properties ( e.g. number of rooms, floor area, property type, age), which can be updated where necessary. They could apply a standard value per square metre to a range of properties of a type that clearly fitted within a particular band.
  • Appeals process. A 3-stage appeals process operates in Scotland: (i) to the Assessor; (ii) to Valuation Appeals Committees, and (iii) to the Court of Session. The final appeal route to the Court of Session is available only where the dispute relates to a point of law.

59. For the LPT, the revaluation process would require specific market values to be given to each dwelling in Scotland. Initially, this would be a slightly more onerous exercise than a revaluation based on bands, where the need for accurate valuations is limited to ensuring that each home is placed in the correct band. Just how onerous this task would be will vary from location to location. It is likely to be greatest in rural areas, owing to lower housing density, greater diversity in property types and fewer market transactions. Less difficulty should arise in more urban areas, especially in valuing incidences of similar properties in the same street or estate.

60. Since the last revaluation, sophisticated Computer Aided Mass Appraisal ( CAMA) software systems have become available. The current revaluation in Northern Ireland is supported by a CAMA system. SAA believes that a suitable system could prove effective in Scotland in the longer term, especially if regular revaluations enabled assessors to benefit from an initial investment in technology and associated training. In general, the usefulness of a CAMA system would be greater in urban areas, where large numbers of similar properties could be valued quickly, than in rural parts of Scotland. A question may arise as to whether the necessary preparatory work (including procurement, development, testing, data migration, implementation and training) could be undertaken in time to enable a CAMA system to be used as part of an early revaluation.

61. Certain consequences would flow from the need for individual valuations. One would be the need for a sufficient pool of expertise to undertake the valuation work. Assessors may have to train new staff and temporary workers in order to ensure sufficient resource and expertise to conduct the valuation work.

62. A possible consequence would be a risk that a larger number of householders would appeal against the accuracy of valuations, especially since (unlike for many households under a banded system) any consequent reduction in valuation automatically would reduce tax bills. However, because there would no longer be the cliff-edge effect of changing bands, the benefit to the householder of a marginal reduction in the local property tax would be less and this militates against appeals.

63.SAA acknowledge that a system based on capital values should be easier to justify to taxpayers than the old rating system. The SAA reported on their experiences with domestic rate revaluations, where Assessors had faced a large number of appeals and had faced difficulty in explaining the concept of notional rental values to householders. They told us that, over the years, the domestic rating system became ever more complex.

64. Under LPT, certain measures would help to reduce the potential burden of appeals. These include clear explanations for the public about how a new valuation system would work and a system of early notification to householders about the likely result of the revaluation on their home. (The SAA portal provided useful information on likely values before formal rates notices were issued following the last non-domestic rate revaluation).

65. The following steps could be taken after the revaluation of properties:

  • Households would be notified of the provisional valuation for their home, and given an indicative LPT bill based on this new valuation;
  • Households would have the opportunity to query valuations informally; and
  • Values for every dwelling in Scotland would be loaded onto a website and made publicly accessible, to allow households to compare the valuation for their home with other properties.

66. The SAA suggest that a recurring revaluation process might be slightly shorter for domestic properties than for non-domestic rates if capital value was used as the basis of value, as records of property transactions held by Registers of Scotland would allow Assessors to recalibrate values relatively easily.

67. The SAA provided us with estimated figures for the costs of revaluation, which they warned should be treated with some caution. They estimate that the cost of undertaking a revaluation under the LPT would be around one-third more than under council tax at present. They estimate the cost of a domestic revaluation, if not carried out at the same time as a non-domestic property revaluation, to be £4.7 million for a banded council tax and £6.2 million for LPT. If carried out at the same time as the non-domestic property revaluation scheduled for 2010, a domestic revaluation is estimated to cost £9 million in the case of council tax, and £12 million for LPT. If the domestic revaluation was postponed until 2011 or 2012, the SAA estimate the figures would reduce to £8 million and £10.25 million respectively.

68. Excluding these costs for revaluations and associated appeals, the SAA estimate that the cost of maintaining a domestic property valuation list would be slightly higher under the LPT than under council
tax at present (estimated to be £1.7 million per year cf. £1.2 million).

69. The Committee conclude that the benefits of regular revaluations on an individual property basis far outweigh the incremental cost involved.

Making LPT easier to pay

70. In their document Council Tax: A Path to Poverty?, Help the Aged in Scotland stated that:

"By paying Council Tax and Water Rates over a 10-month period older people are put under considerably greater financial pressure than if they had to pay the bill over a 12-month period."

71. They reported that 70% of pensioner households were found to be paying more than 10% of their net income on council tax and water and sewerage charges during the 10 months. The 70% figure dropped to 53% of pensioner households if looked at over 12 months of the year.

72. Both Help the Aged in Scotland and Citizens Advice Scotland believe the option of either 12 monthly instalments or 13 four-weekly instalments (which is one of the options available for receipt of the State pension) can make a meaningful difference to low-income households (both pensioner and non-pensioner), who find it difficult to save from one month to the next.

73. We understand from COSLA and the CIPFA Directors of Finance Section that some local authorities already offer residents the option to pay council tax over 12 instalments. It is not clear to us why more councils do not offer this option. However, COSLA suggested that there are two main concerns. First, the "free" months in February and March, when council tax is not payable, give councils the opportunity to pursue recovery action against late payers before the end of the financial year. The second concern is that existing regulations may require any arrangements for paying tax over more than 10 instalments to be updated annually (except for direct debits, which are deemed to roll forward to the following year automatically).

74. Both COSLA and the CIPFA Directors of Finance Section recognise that there may be merit in local authorities making the ability to pay by 12 monthly instalments more widely available, particularly under direct debits.

75. We recommend that the option of payment by 12 or 13, rather than 10, instalments should be offered to all taxpayers. We further conclude that consideration should be given to introducing this change for payment of council tax bills in 2007-08; that is without waiting for the introduction of our proposed local property tax.

Equalisation

76. The revaluation required for LPT would change the tax base for individual local authorities. The implications on the process of equalising local authorities' tax bases are discussed in section19.

Timing

77. Our proposals involve significant change to current council tax arrangements. Implementation will take time. As with any substantive reform, sufficient consideration will be required to ensure the necessary preparatory work is fulfilled to allow for timely implementation, and also to minimise turbulence in the intervening period.

78. The essential element of the preparatory work to implement LPT will be the revaluation process. We understand from the SAA that the earliest realistic date for the revaluation exercise is 2010, meaning updated property values from the revaluation would apply to tax bills issued for financial year 2010-11. Using the revaluation process for non-domestic rates as a basis for comparison, this would suggest that the revaluation work would take place throughout most of 2008 and 2009, using 1 April 2008 as the Antecedent Valuation Date. Updated valuations might appear on the SAA portal from November 2009, which would allow a period in which households could query valuations to Assessors informally before tax notices for financial year 2010-11 were produced in February or March 2010. A formal appeals process could then apply against valuations once households had received their tax notice.

79. Combining a domestic revaluation with the business revaluation already scheduled for 2010 would stretch resources available to Assessors for conducting and managing the revaluations and would also increase the overall cost of revaluation. Pressure on resources and additional costs would also apply if a domestic property revaluation took place in 2011, although to a smaller extent than in 2010.

80. Regardless of when LPT was introduced, we recommend that as much advance notice be given about timescales as possible. The credibility of LPT depends on people having time to learn about and understand the tax and on minimising the risk of serious setbacks in its implementation.

Transitional arrangements

81. Transitional arrangements frequently are used to phase in over a period of time the tax increases for households whose tax liability will increase significantly as a result of the changes. For example, transitional arrangements which follow all non-domestic revaluations were introduced after the recent domestic revaluation in Wales and features as part of domestic rate reform in Northern Ireland. Because LPT is more progressive, self-financing transitional arrangements would mean that those in lower-value properties would be subsidising those in higher-value properties.

82. An alternative to self-financing transitional arrangements would be the provision by the Scottish Executive of short-term funding to provide cushioning during the transitional period.

83. We conclude that transitional arrangements should not be necessary for LPT.

Conclusions

84. We have concluded that LPT performs well against our criteria. It would be substantially more progressive and consequently "fairer" than the council tax, with most households in Bands A to C benefiting from the change. It would be identifiable as a local tax and the size of the taxbase would be identical to the council tax base. It should be straight-forward for householders to understand, as taxpayers could estimate their tax liability as a specific percentage of the value of their home. It would be difficult to evade and easy to collect. In terms of costs, it would be not significantly more expensive to assess and no more expensive to collect. Its yield would be as stable, predictable and buoyant as council tax.

85. Exemptions for certain categories of property would be compatible with LPT. All the current exemptions could consequently be retained or the opportunity could be taken to review them.

86. We conclude that there is no logical justification for any personal discounts or disregards in relation to LPT. However, we recognise that the decision about whether or not any such discounts or disregards should continue will ultimately be for Ministers to make.

87.LPT cannot be implemented without revaluation. Routine regular revaluations will be essential to maintain the integrity and credibility of the tax. We cannot over-emphasise that revaluations should be, and be seen to be, yield-neutral in overall terms.

88. We have considered how the LPT might be made easier to pay. The option of 12 or 13 instalments should be offered to all taxpayers. (This is a change that should be made immediately in relation to current council tax.)

89. We conclude that transitional arrangements should not be necessary for LPT.

Recommendation 4: We recommend that a new local property tax ( LPT) should replace council tax. LPT would be assessed as a proportion of the capital value of homes in Scotland.

Recommendation 5: We recommend that the LPT should be payable with no discount for second and subsequent homes.

Recommendation 6: We recommend there should be regular statutory revaluations not less than every 5 years; ideally on an annual basis.

Recommendation 7: We recommend that all households should be offered the option of paying LPT in 12 or 13 instalments and consideration should be given to making this option available under the council tax from 2007-08.

Page updated: Monday, November 06, 2006