The link to the proposals and consultation are here: Council Tax High-Value Property Bands (Mansion Tax): consultation - gov.scot
Effectively, this will mean the introduction of two additional Council Tax bands in Scotland (Band I and Band J) to our current 8-band structure (Band A-H). Band I will be for homes valued at £1 million to £2 million and Band J will be for homes valued at over £2 million.
It is estimated that the new bands will bring in around £12 million to £16 million per year in revenue, which is a very small amount. Overall, Council Tax currently brings in around £3.5 billion of net revenue each year for local government. There will also likely be a need for some form of valuation exercise to capture properties at these levels, which will have a cost and will not be easy (Zoopla recently estimated that around 40% of properties in England & Wales worth over £1.5 million did not have a sale recorded on the Land Registry. If the same is true in Scotland, then the basis for many valuations may well be questionable).
Note that the valuation exercise is only planned for these properties and not for properties more widely, which will continue to be banded by their 1991 valuations, which is one of the many problems with Council Tax.
It is estimated that there only around 15,000 properties in Scotland will be impacted by this change; a very small proportion of the approximately 2.7 million residential dwellings in the country.
The current top band (Band H) in Scotland pays an average of £4,051 per year in Council Tax. In the illustrative examples provided in the consultation, the Government suggests that Band I may pay an additional £720 on top of this (bringing the total bill to close to £5,000 per annum) and Band J pays an extra £3,600 (bringing its total bill to close to £8,000 per year).
It will be difficult to elicit sympathy from the general Scottish population for people buying houses at these price levels and there will undoubtedly be campaigning to make these uplifts much higher. Taxing other people more is always popular.
However, the Government needs to take account of the other major tax that these properties contribute to – Land & Buildings Transaction Tax (LBTT). A house sale at £1 million will generate over £78,000 in LBTT and the tax take continues to rise to £2 million, when the LBTT due is £200,000. If this is a second home purchase and includes Additional Dwelling Supplement (ADS), then the equivalent figures are £200,000 and £358,000. The prime part of the property market is already quite heavily taxed. Although the additional Council Tax being sought for these properties is relatively small, it may well have a cooling effect on prime sales.
There were just under 500 sales of £1 million plus properties in Scotland last year and LBTT from these sales in Scotland generated around £65 million per annum for the Scottish Government, i.e. around 9% of the total LBTT tax take from just 0.5% of the total sales. It does a lot of heavy lifting. If the ‘mansion tax’ causes a behavioural response and makes some people less likely to move at these values, then the increased tax take from the ‘mansion tax’ may be more than wiped out by the loss of LBTT revenue (and the loss of the wider economic impacts of these sales not just for estate agents but for conveyancers, solicitors and removal firms as well, among others). For example, if there were 20% fewer sales due to behavioural responses, this would reduce LBTT revenues by around £13 million, i.e. equivalent to the total ‘mansion tax’ revenue.
I made this point in a recent BBC Radio Scotland interview on its Drivetime news programme, which you can find here from around 15:20 minutes: https://www.bbc.co.uk/sounds/play/m002ykvr
We have argued over the years that the Scottish Government should be looking more closely at behavioural responses to taxation, particularly LBTT, to optimise the tax take while also not depressing the market. It has not done this to date. In the context of the introduction of the ‘mansion tax’ it seems important to do this now.
The consultation closes on 24th August, and we would encourage people to participate.