Council Tax Suggestion

[andrewducker]

The current situation in the UK is that you pay money to the local council based on the worth of your property - with the worth being broken down into bands to simplify things somewhat.

The value of each property is based on valuations going back to 1991 and the government has recently postponed reevaluating the amount the places are worth, scared of offending people whose property has gone up significantly in value. The amount of council tax would remain the same overall, but because some people would pay more the government is terrified that those people who riot in the streets (or vote for The Other Side, which is clearly much worse).

The main objection seems to be from people who have lived in an area for decades and have watched the prices go up around them. Which may leave many older people with a property they couldn't afford to buy nowadays, and would be forced to move from if they paid significantly higher council tax.

Also, there are many questions about how to re-evaluate the property prices. The market is always in flux, and you can bet that a large proportion of people would complain about the amount they were told their hoem was worth.

The obvious answer to the problem is to move from a silly property tax to income tax - and preferably to just build it into national income tax and redistribute it (councils currently get 3/4 of their income from central government anyway, and there's a totally disproportionate amount of fuss over this remaining 25%).

However, if we _are_ going to stick with a property tax then there's a very simple answer:
Base the value of the property on....the amount people last paid for the property. Then charge them a percentage of that value each year. Remove bands entirely - they'd just distort the market further - and just base it on what the actual lastk nown value of the property.

This means that old people with a building they paid peanuts for will be paying a low amount, whereas property investors or those deliberately moving up in the world will pay higher amounts. Everyone will know in advance how much their council tax is, and there won't be a nasty surprise to look forward to when the council _does_ reevaluate the property.

The only problem I can see is for people whose properties have remained in the family for generations - there would need to be some sort of reevaluation when it's passed on. But I believe this occurs for inheritance tax anyway.

I'm sure I've missed an obvious problem somewhere - anyone?

Comments

[kashandara.livejournal.com]

Ok, maybe I'm just having a slow day, it's Sunday and it's been a heavy weekend but most property developers buy to rent. Those doing the renting pay the council tax. Therefore you are going to unfairly increase the council tax burden of those who can't afford to buy their own property surely?

[surliminal.livejournal.com]

Not really - people will know the council tax value when they come to rent - and the more the place is worth in the first place the higher the rent would have been anyway. Poorer people rent cheaper property which will have lower council tax. Renting somewhere that has just been bought will certainly mean its more expensive. But then it would be anyway, as the place would have been more expensive than places the property developer bought a while back.

[neferet.livejournal.com]

That argument doesn't quite work. Housing associations buying property at high price are obliged to offer ffordable rents - the rent is not directly related to the cost of the property. Many people already struggle to rent, and are obliged to go to a housing association as they are the only landlords whose rent is controlled in any way. In that scenarion, the high council tax value would financially prohibit many tenants from even being able to approach a housing association for property. Unless there were some sort of exemption for that type of landlord.

[andrewducker]

How do they currently deal with high council tax for housing association properties?

And, indeed, how do housing associations manage to buy expensive places and rent them cheaply without going bankrupt?

[neferet.livejournal.com]

Most HA are capped (Council tax) at band D.
HA can be subsidised by the government. There is also a current phase whereby and property developer has to designate a portion of their build for affordable housing - these are often managed by the HA (I suspect that the relative price of the non-earmarked properties could end up higher to compensate).

[hawkida.livejournal.com]

People struggling to get together the money for a mortgage, all those "first step on the property ladder" people who are the subject of all the "kids stay with parents longer than ever" stories are suddenly given yet another stumbling block to meet when they face their expensive first mortgage with suitably expensive council tax attached, while the people next door who have only the advantage of having held the mortgage 10 years pay significantly less?

[call-waiting.livejournal.com]

Rather than simply the last-known price, a better system would be to use the last-known prices adjusted for the inflation of the general property market, so taking care of the old generation family homes thing.

It doesn't have the side-effect of penalising property speculators and yuppies, but that's what stamp duty is for, so we could whack that up at the same time.

[drplokta]

The problem is that no one can move house, which is a pretty serious problem, as if they've been in their house for more than a few years the extra tax bill would be crippling.

[andrewducker]

Very good point.

Hmmm - if you raised the value in line with inflation then it would have a slowing effect when house prices rose faster than inflation, and would actively _encourage_ people to buy houses when prices were running lower than inflation. In fact, that sounds positively useful!

The land tax one sounds good too - except that people who specifically buy up run-down property because it's cheaper would be shafted. A friend of mine got a place about £30k cheaper because it was in bad condition - there's no way he could afford it at full price, and higher property taxes might have made it impossible too. You'd presumably split the property value amongst all the owners of a group of flats, yeah?

I like the idea of deferral, but can see issues with it - for instance, when do you allow people to start deferring from, and if they live another 30 years after they start deferring and the amount they've deferred is greater than the value of the property, what then? I know that some mortgage lenders now lend to old people and then collect from the estate but I don't know the details of how that works.

[drplokta]

The better solution is to reduce income tax and have a big land tax instead of a property tax, based on the fully developed value of the land. This is much easier to value, since you just have to know the type of planning permission granted, the area of the land and the location, and don't need to visit at all or worry about the property condition, extensions, etc. It also gives people a big disincentive to hold onto derelict land, run-down buildings or big land-banks being held back for future development.

You also allow people to defer payment of part of the tax until the sale of the property, thus allowing land-rich but cash-poor pensioners to stay in their houses at the expense of their eventual estates.

[channelpenguin.livejournal.com]

Fuck it, I was going to say just bring back the poll tax. Then I realised I wanted to base it on what income tax you pay, so you might as well stick it onto that and be done with it, as you said in your post.

Oh and by god does stamp duty suck the big one if you live somewhere where *everywhere* is ludicrously expensive (like Surrey!). Be OK if you could shove it on the mortgage, but you have to front it up - which always struck me as unfair.

Psychologically, councils need to have a source of income over which they have local control - or the illusion thereof. And the people who live there need to feel that too. Not exactly efficient or many not logical, but something in human nature - to resent centralised control...

[jccw.livejournal.com]

It's tricky. Two words: Proposition 13. Basically, doing something roughly like this in California has made it so that it's now much more difficult to buy a first home.

Actually the thing that bugs me about council tax the most is that it gets charged individually to the tenant(s) (for a rented property), not the owner---which is universally what is done in the US. Besides being personally annoying and invasive to have yet another tax authority breathing down your neck (and another set of things that can go wrong), and complicating the process of finding a place to live, it surely causes the council a huge amount of wastage and added bureaucratic mess keeping tabs on everybody. Of course I realize that no one with any influence on the process (the council and landlords/letting agencies) has any incentive to fix anything.

[andrewducker]

Ideally it should go to the owner, who would then pass the charge on to tenants as part of the rent.

Of course, this would then cause problems for tenants who don't pay council tax...

[guybles.livejournal.com]

As cori_gated has pointed out, whilst reading over my shoulder, a major flaw is the massive differences that would emerge between popular areas and unpopular areas, hence the resultant shortfalls of income for the latter.

Consider the example of Edinburgh vs. Dundee: Edinburgh has high property prices, hence a last-sale Council Tax would generate significant revenue for Edinburgh Council. Dundee has low property prices, and would have a much lower intake (not to mention the loss of income from Council Tax benefit). Net result is that Dundee would have less money to spend on services to residents, thus lowering the prices further which, in turn, would reduce the Council Tax income...and so on.

Now, it's fair to say that basic supply-and-demand economics would drive people to buy in cheaper areas to pay the lower rate of council tax and, over time, the pricing differential would reduce. But it would be a long time and, in any case, we aren't seeing this happening in any significant way with property prices as a whole. For example, Dundee house prices have been depressed for some time and do not show any signs of matching Edinburgh levels. Council Tax would be a smaller part of the equation, hence would not make any appreciable difference to individual preferences: Dundee may be cheaper to live in, but it's still Dundee!

Ultimately, people want/need to live within a reasonable distance of their workplace but receive superb local services for the minimum amount of taxation. When people look for property, the Council Tax bill is not necessarily part of the decision-making process. In fact, over the last five-to-six years of housing boom, have you seen one property programme seriously deal with this subject? No - it's all about the "dream home" in the "right area" with the prospect of making a fortune when you eventually sell on.

The attitude towards housing in this country is basically wrong anyway, with people largely forgetting that a house is somewhere to live, not a physical form of their retirement nest-egg. When that mindset is tackled, then you'll start to see some sense returning to property prices, including a return to parity with Council Tax.

[andrewducker]

Consider the example of Edinburgh vs. Dundee: Edinburgh has high property prices, hence a last-sale Council Tax would generate significant revenue for Edinburgh Council.

I thought I'd said that the total amount of tax collected by each council would remain the same - but I've actually only mentioned it tangentially, and further up.

Clearly Dundee would need to charge a higher percentage than Edinburgh would, in order to carry on bringing in the same income. It would be up to each council to set their percentages according to what they needed.

[guybles.livejournal.com]

It would be up to each council to set their percentages according to what they needed.

So, people living in poorer areas would end up paying proportionally more to maintain the same level of council services? That's not really a fairer system of Council Tax. Sure, the total they pay might be less than in a wealthier area, but as property values generally inflated over time, they would end up paying more-and-more, until the percentages were revalued.

I believe similar arguments take place over the effectiveness of a single rate of income tax - on paper it looks great, but in practice it punishes those who earn less, until you start giving them subsidies or discounts to allow them to survive. By which time, you're back to a tiered rate system.

Although I never passed my tax exam (back in the days when I was pretending to be an accountant), I do remember that the aims of taxation (funding public services, redistributing wealth, influencing behaviour) are noble but the implementation will never be perfect.

[andrewducker]

So, people living in poorer areas would end up paying proportionally more to maintain the same level of council services?

No moreso than they do at the moment. Any system whereby local people pay for local amenities will have less amenities for poorer areas than for richer ones. The only alternative to that is central government taking the cash and redistributing it. I'm trying to find a simpler way of keeping the amounts people pay up to date (as opposed to based on valuations that are 15 years old), not solve all the inequities.

To solve the inequities you'd need to go for a few more pence on income tax and then distribute it in such a way as to give a basic guarunteed service to everyone. Which is tricky when you get down to small town/village level, to say the least.

[heron61.livejournal.com]

I think the last paid value adjusted for inflation is definitely the best answer. I've always been slightly dubious about the concept of evaluating the value of a house in an abstract sense, especially at any time that property values are highly variable. At that point, then unless readjustments are made yearly, someone could be stuck paying a tax based on a temporary local housing boom that occurred after they purchased their house and which was over long before they sold it, and if readjustments are only made every decade or more, this could be exceedingly difficult and unfair. OTOH, not adjusting property taxes for inflation seems a bit unfair.

Beyond all that, reading all of the arguments about this further convinces me how utterly screwed up ideas of property and responsibility to pay for government services are in the US. Congrats for living in a vastly more sensible and humane nation.

[missedith01.livejournal.com]

This means that old people with a building they paid peanuts for will be paying a low amount

Why is this necessarily a good thing? What matters for the amount of CT a person will pay (after discounts and benefits) is present income and capital (property value disregarded). Therefore poor older people are already protected, and don't need to be protected any more.

whereas property investors or those deliberately moving up in the world will pay higher amounts.

... and people who need to move to a certain area to work, and people who want to buy a house in a certain area to live near their family ... and anyone who is averagely waged buying a house for the first time.

The fact is, any change is going to result in winners and losers. Our government needs to grasp the nettle and move to BETTER system, not one which is even more indefensible than the last.

The main objection seems to be from people who have lived in an area for decades and have watched the prices go up around them.

But this is bogus. The banding system should sort properties in an area into relative values. Then an increase should only occur if someone's property has leapt ahead of the general rise in property values.

Not that I'm defending the present system ... a local income tax works for me. But with respect I do think your suggestion is even nuttier. :-)

[andrewducker]

The main objection seems to be from people who have lived in an area for decades and have watched the prices go up around them.

But this is bogus. The banding system should sort properties in an area into relative values. Then an increase should only occur if someone's property has leapt ahead of the general rise in property values.

What I meant here was properties in an area which used to be less nice and is now much nicer, due to changes over time. I've seen this happen a couple of times with older relatives, suddenly finding themselves in a much nicer area than the one they moved to.

But overall, yes, I'm coming to the conclusion that any property tax has too many problems and inequities and income tax is the only reasonable alternative.

[oldbaldchris.livejournal.com]

Am I the only one who thought the poll tax was fair? It seems to me that since the tax is supposedly there to pay for local amenities , it should depend solely on how many people live there.
And no I don't care that that means pensioners have to pay the same as everyone else ; I never have understood why people over a certain age don`t have to pay for certain things anymore. Put the pension up to a decent level , and charge them the same as everyone else. Don't forget they no longer pay income tax , and if their home was bought then the mortgage should be paid off by the the time they retire. So their costs are lower anyway.

[sqferryman.livejournal.com]

The flaw in the plan is that there's nothing to stop a scheme where you sell your house to a third party and then buy it back immediately at a low price.

[channelpenguin.livejournal.com]

Interestingly, at present, you cannot use the argument that your property is much more run-down than your neighbour's and hence worth less to get you rebanded and reduce your council tax. I know someone who tried and failed, despite that ti was clearly true.

So, certainly, it needs frequent reassessment if it is to work.

I also agree that it should be paid by the owners, not the tenants. Factoring it into the rent would be more honest, to be honest. People on low incomes might find anywhere cheap enough harder to come by... but that's an issue for the benefits system to deal with, probably.

[oldbaldchris.livejournal.com]

Can't agree there; I think it is only fair that the cost is passed to the tenants. Afterall they are the ones that are living there , why should the owners have to pay tax on a place they are not living in? People on lower incomes find everything harder to do than people that earn more , so what? I don`t complain because Bill Gates has an easier time financially than me , and for people on low incomes the same principal should apply. Besides which , if it bothers them that much , they can look for better paid work. Before anyone says "but thats easier said than done - there isn`t any where I live etc etc" , then bloody well move to where there is. I emigrated twice to find a decent paid job , other people can do the same.

[channelpenguin.livejournal.com]

At no point did I say that it *wasn't* fair to pass the cost onto the tenants, and in fact, I think no such thing. Rent is rent, and the landlord's costs are always going to be factored into it, whatever they are. If there a general increase in rental costs across the board, then of course some places will go out of some people's reach. I almost made a similar comment to yours about going and earning more money. Probably should have.

And I happen to agree with you also re: poll tax and pensioners!

But I never was a bleeding heart, was I ? :-)

[azalemeth.livejournal.com]

While you're on well deserved rants, add inheritance tax to the list. The place where I live - originally a Yeoman's home that has never been worth much, but was bought with money my grandfather won at the 1930's equivilent of the bafta awards, but for advertising photos - has skyrocked in value with the market. So, my mother and I are left in the wonderous situation of having virtually no money, my grandmother also having virtually nothing, and the prospect of a £135,000 IHT bill when she croaks it......

[andrewducker]

Actually, I'm firmly in favour of inheritance tax.

That's not your house, it doesn't belong to you. Someone else bought it and it belongs to them.

If she wants you to have the whole house then she needs to give it to you well in advance of dying, and if she doesn't that's her choice.

When she dies you'll get a large chunk of money from selling the house, and be able to get yourself somewhere a tad smaller that _will_ belong to you.

[azalemeth.livejournal.com]

Ahh, but you see, she can't do that - they've closed the loop hole. You need to gift the house (or put it in trust) seven years in advance of death, and then pay a fair market rent to the new occupants - especially in this case as the money for extending it came from selling my mother's flat, back in 1996, leaving my mother with nothing, and my grandmother with everything. Likewise, she can't give us anything - it's not given until seven years are passed, and then we need to pay two lots of tax on it.

The main trouble I have with IHT is that at some point the money *was* earned, wherever it came from, and, as a result, has already been taxed several times. IHT was originally designed to only apply to the very top few echelons of the income bracket - the threshold of £285,000 (iirc) was very high when it was set, but is now around the value of an average family home.

Finally, one other thing - you can't pay the IHT bill with assets from the estate in question. This is totally a right royale pain in the arse. We would literally be left with a bill of £120 ish k, and no way to pay it whatsoever - my mother has £212.90 in her bank account, and what I have doesn't amount to £120000!

What we're going to end up doing is gifting part of her estate away, so it grows outside it, loaning the other bit of cash she has to herself, my mother, and I, and as a result what will happen is that after seven years the money has grown outside of the estate, part of it is no longer considered hers, another large chunk is a debt to the estate, and finally, the loan bond will be able to repay itself to her estate when she croaks it (gods forbid), as well as having enough capital to pay the IHT bill. And that's all the start of a long headache I won't get into.....

[andrewducker]

Since when can't you pay the IHT bill with assets from the estate? The estate is what owes the tax - no individual owes that tax!