Scottish Government

CHAPTER TEN: TAXATION ON EMPTY AND SECOND HOMES

SETTING A SECOND HOMES TAX

10.1 The Scottish Government believes that a continuing tax specifically targeted on second homes and long term empty properties is fair. There are 3 main aspects to creating a fair second homes and long term empty properties tax:

• identifying the properties;
• setting a fair amount of tax;
• collecting the tax.

Chart 10.1
Question 20 - To what extent do you agree that local authorities should play a part in setting a second homes tax?

Base: Individuals (418)

Individual responses

10.2 Over half (51%) of 418 individuals agreed to some extent that it is important for local authorities to play a part in setting a second homes tax. Chart 10.1 shows that just over a third of individuals (34%) disagreed to some extent that it is important for local authorities to play a part in setting a second homes tax. Nine percent did not reply or said that they did not know.

10.3 Three out of 12 free-flowing individual respondents addressed the issue of setting tax rates for second homes. One individual agreed strongly that local authorities ought to play a part in setting such a tax and commented that only income from second properties should be taxed, not the properties themselves. One final response felt that proposals on this issue seemed vague.

Organisational responses

10.4 Twenty-three out of 86 organisations assigned a score to the question "To what extent do you agree that local authorities should play a part in setting a second homes tax?" and most agreed to some extent that this should be the case:

• 18 agreed strongly (10 from local government, one from tax, pay or finance and 7 'others');
• 3 agreed slightly (one from each category);
• one 'other' neither agreed nor disagreed;
• one from local government disagreed strongly, adding that they disagreed strongly with the concept of a second homes tax.

10.5 Comments also indicated support for local authorities playing a part in setting a second homes tax. Six organisations (5 local government and one political organisation) provided comments illustrating their support for local authorities playing a part in setting a second homes tax. One local government organisation felt that "It is imperative that this valuable measure continues in some form, raising at least as much funding as at present…Local Councils must play a key role in tax setting, and in determining the use to be made of the funds so arising."

10.6 Whilst also agreeing with the notion of local authorities playing a part in setting a second home tax, one political organisation was of the opinion that "the Government's position on the second home tax is muddled… if the Government wants local taxation to be linked to "ability to pay" then it should not impose a tax on second homes since local income tax would already have been levied on the earnings of anyone with a second home."

10.7 One tax, pay or finance organisation suggested that "A move to property and not individuals, as the proposal suggests will create a hybrid system. Similarly, numerous local second home tax rates rather than a rate set nationally would create uncertainty. This would result in the aim of a fairer tax not being achieved." Additionally, 2 other organisations also questioned whether it was fair to impose a tax on second homes since local income tax is based on "ability to pay" and would have already been levied on the earnings of anyone with a second home (assuming the residency test was met (political organisation). One tax, pay or finance organisation notes:

"To impose a combination of an income tax and a wealth tax on one taxpayer but to use only income tax on another who may have other assets appears to be inconsistent with the objective of being fair."

Property database

10.8 One local government organisation also highlighted the importance of maintaining a complete property database:

"[The organisation] strongly agree that it is essential that local authorities play a part in second home tax. But, there is a real danger that income will be lost from these properties under any new tax system which does not maintain a complete property database."

10.9 The view of this organisation was echoed by a small number of other organisations (one political and one tax, pay or finance organisation) who were of the opinion that a register (similar to that currently used for council tax) for all properties in Scotland is essential. Although, as one tax, pay or finance organisation noted "the onus would fall on individual taxpayers to notify local authorities that they had a second home."

10.10 Two local government organisations questioned how the movement of second homes can be tracked after abolition of council tax because there are no incentives for owners to provide such information.

COLLECTING A SECOND HOMES TAX

10.11 Proposals for tax on second and empty homes are to be collected by local authorities in the same way as at present through the system of non-domestic rates. Respondents were asked for their views on who should collect a tax on second or empty homes.

Chart 10.2
Question 21 - To what extent do you feel second homes tax should be collected by ..

Base: Individuals (418)

Individual responses

10.12 Chart 10.2 shows that for over a third of respondents HMRC was the favoured agency for collecting tax, with 32% of the 418 individuals agreeing strongly and 36% agreeing to some extent. Local authorities came second with 34% agreeing to some extent (27% agreed strongly). At least 25% did not know or did not reply at each part of question 21. Two out of 12 free-flowing responses looked at this question, with one suggesting local authorities collect the tax, whilst the other recommended the expedient of Scottish Water combining its collection of water charges with the second homes tax.

Organisational responses

10.13 Most organisations who commented on this topic were in favour of a second homes tax being collected by local authorities; 24 out of 86 organisations agreed to some extent that this should be the case (11 from local government, 2 tax, pay or finance and 11 'other' organisations). No organisations voiced disagreement.

10.14 Only one 'other' organisation felt that HMRC should collect a second homes tax; 8 organisations (2 from local government and 6 'others') disagreed to some extent that this should be the case.

10.15 Two 'other' organisations felt that a Scottish local collection agency would be best placed to collect a second homes tax; 8 organisations (2 from local government and 6 'others') disagreed.

10.16 There was almost no support for the tax being collected by a private collection agency.

10.17 The qualitative analysis of organisational responses showed that there was most support for local authorities collecting second homes tax. Ten organisations including 8 local government organisations, one political organisations and one tax, pay or finance organisation agreed that the existing system within local authorities is "very efficient", the systems and expertise are in place and local authorities have an " outstanding" record of collecting tax from properties throughout Scotland".

"If the new tax is to be administered on a similar basis to Non Domestic Rates, as is proposed, then collection should be done by local authorities. As stated in the consultation document local authorities have an outstanding record of collecting tax from properties throughout Scotland."

(local government organisation)

10.18 There were, however, some concerns:

"Current arrangements for the administration and collection of council tax on empty and second homes are very efficient. If council tax administration in general is no longer required, it will prove relatively costly to maintain and administer a scheme exclusively for empty and second homes. Regardless of any new system put in place, it is difficult to envisage how such a scheme would combat the individuals who might choose to avoid declaring second homes."

(local government organisation)

10.19 Although in favour of local authorities collecting second homes tax, one local government organisation did point out that a new administrative organisation would be required to monitor and value homes and monitor changes of ownership, occupation and use on a daily basis. This organisation went on to say that " Whilst council tax on second homes can be administered relatively cheaply as an adjunct to council tax itself, a separate second homes tax would be expensive and a significant proportion of income would be lost to cost of collection and tax avoidance.". One political organisation concurred with this view stating that this would be a "Significant burden".

10.20 Two organisations pointed out the disadvantages of HMRC collecting second homes tax:

" HMRC have no local knowledge, experience or presence of dealing with land or property based taxes."

(local government)

"The tax on second homes will apply to a relatively small number of homes. The tax is of such a nature that it is highly unlikely that HMRC would have any existing facilities to assess and collect such a tax."

(tax, pay or finance)

10.21 In relation to a private collection agency collecting second homes tax, one tax, pay or finance organisation felt that taxpayers would not be comfortable with a private collection agency holding their details.