Introducing a Property Tax

The Northern Ireland Experience

A personal view

Brian McClure, Department of Finance and Personnel

9/10 March 2010

Belfast Telegraph – 15th June 2006

Land valuation taxation as an alternative to the rating system would inevitably lead to agricultural land being rated. To save the headlines in the ‘News Letter’ and ‘The Irish News’ tomorrow, I should say that that there isn’t any intention of bringing agricultural land within its remit.

Agricultural tax 'being considered

The taxation of agricultural land is being considered to raise Government revenue by the Department of Finance. The revelation has been made following discussion of the matter at the Finance Assembly Committee. Last night Ulster Farmers' Union deputy president John Thompson said the news was "a very worrying development for farming".

Some facts and figures on revenue levels:• Rates provide part funding for hospitals,

schools, roads, water AND main funding for local councils

• Raise £1bn overall – roughly half from domestic and half from non domestic

• Also split between regional and district rate revenue - just over half going to NI Assembly

Background:

• 700,000 houses in NI, 72% owner occupied

• Non domestic 80,000

• Average domestic rates bill is around £740

Policy changes from April 07

• Individual capital values for domestic

• Reliefs:– Low income reliefs – Lone pensioner allowance and deferment– 3 year transition (>33%)

• New appeal service

• Small business relief and industrial derating retained

How easy is it

to establish

capital values?

The Revaluation - What is Capital Value?

The price which the property might reasonably have been expected to realise if it had been sold in the open market at 1 January 2005.

Main Valuation Assumptions

• No development potential.

• Average state of internal repair and fit-out

• Always domestic.

• Farmhouses – only occupied as farmhouses.

• No encumbrances/ fee simple/ vacant possession.

The Revaluation • The task of valuing 700k homes to a

common valuation date

• Each with an individual assessment of

capital value

How easy is it to establish capital values?

Sales

Details all properties

CAMAValue Review

Revaluation Process

DataModels

Acceptable Values

Analysis

Initial values

Data is the answerValue significant attributes

what we held: what we needed:

• Location• House type, age• Size, construction• Accom, access,• Outbuildings• Date of last refurb

• Site characteristics - (positive/negative)

• Actual external repair.

• Neighbourhood, geo-codes

• How were issues of fairness and equity dealt with?

• How are households that are income poor, but capital rich treated?

• What exemptions are there and what is the

rationale?

Who pays a property tax? (or, why you need a relief scheme)

• Analysis from the old system

• Doesn’t take into account reliefs paid

Weekly Income (£’s)

% spent on rate bill

1 - 100 11.63%

101 - 200 4.18%

201 - 300 2.83%

301 - 400 2.54%

401+ 2.78%

The low income Rate Relief scheme

• Rate Relief is a completely new scheme coming into effect in April 2007

• It is essentially an extension of the HB system (which already exempts 20%) but it is funded locally

• It applies only in Northern Ireland – there is no equivalent in GB

The low income Rate Relief scheme

• Means tested

• Provides assistance to those most in need – in receipt of part housing benefit or just outside thresholds

• Costs around £4m per year

• Paid for by other ratepayers

Disabled Person’s Allowance

• 25% reduction for people with substantial and permanent disability

• Applies where the house has special features to meet needs of disabled person

• This is not a ‘vulnerable group’ discount but a measure to ensure no disadvantage (by offsetting for extra accommodation or facilities)

Lone pensioner allowance

• 20% reduction for lone pensioners aged 70 or over

• Not means tested

• Identified as a particularly vulnerable group

• Designed to overcome issues of poor take up of housing benefit and rate relief

• (‘Single person discount’ under Council Tax)

Green Rebates

• Designed to encourage households to act in environmentally friendly ways

• Rebates for loft and cavity insulation

• Rates holiday for new low/zero carbon homes

• Introduce April 2010

Deferment

• Allow pensioners who own homes to defer payment until the house is sold

• Popular in other areas (N.America, Australia)

• Minimum equity levels to apply

• Introduce April 2010

Max Cap

• £400k cap – all value above that is disregarded

• Introduced by local Ministers who did not want people in NI paying above the average for the highest CT band in England

• Helps small number at top end (around 5,000)

Special cases

• Farmhouses get a discount

>farmers can’t move

>protects those in high value areas

• Social rented sector standardised

>based on rent

>capital values inappropriate

Other cases

• ‘Empty’ Homes

>can be rated (intention to return)

>intend to introduce next year (subject to market)

• Second/holiday homes levy

>decided against this

>easy to evade/difficult to police

Pitfalls and problems

• Costs of administration

• Formulating the right policies and implementation are relatively straightforward

• It’s the politics that makes it so difficult

Thank you for listening

Any questions?