£30,000 council tax bill?! Why plans for second home surcharge will harm Edinburgh – Brian Monteith

The surcharge would result in a council tax bill four times higher than that paid by single home owners. For Edinburgh’s 1,440 second homes that would mean band A going from £1,084 to £4,336; band D rising from £1,626 to £6,504; and band H going from £3,983 to £15,835 – with all council tax bands still to have water and wastewater charges added.

As we can see, the second-home surcharge takes the council tax for the lowest value property in band A to a hefty £4,336 – which is higher than the current charge on the most expensive properties in band H. Higher value property sales are likely to slow down and prices may fall to effect a sale. This could impact upon the values of other properties without helping Edinburgh’s housing emergency.

I am told by those attending council meetings that Labour is not even the strongest advocate of these sort of taxes but that the Liberal Democrats, SNP and Greens are the keenest advocates.

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A break with the social contract

Bear in mind the council tax is an annual charge, unlike stamp duty or capital gains tax (CGT), which are levied when assets are bought or sold. Of course it never goes down, it always increases – usually at a rate higher than inflation. This year Labour increased Edinburgh’s council tax by 4 per cent.

The council tax was originally called the community charge – which reflected the fact the tax was always intended as a contribution for using local services, such as education, social work, refuse collection and road maintenance, amongst others. Council services are funded not just by council tax, but also by business rates and central government grants.

The idea that a property owner should pay any surcharge at all for a second home represents a break with that social contract as the proportionate call on using the council’s services diminishes rather than multiplies because of owning two properties. Children of a property owner can only use one school at a time, drive one car on a road at a time, and access social services one person at a time.

Indeed the fact such owners use proportionately fewer council services once meant they received a small discount. Now they are just a means for politicians to raise taxes to pay someone else’s benefits or fund a political bribe (commonly known as a subsidy).

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‘Until the pips squeak’

Wealthier people already contribute a higher share towards council services because they pay a higher share of the country’s overall tax burden that funds the grants for councils through significantly higher rates of income tax as well as their elevated contributions to CGT and greater consumption through VAT. Scots in the top two income tax bands form only 5.2 per cent of taxpayers but contribute 38.2 per cent of Scottish income tax revenues.

Most second homes are unlikely to be a second of two properties in Edinburgh but of someone with a property in London or abroad who then spends less time there than in their primary residence. If it is the second of two properties in Edinburgh you might possibly have a bin collection at both locations (though not two sets of schooling etc) – but then you would already be liable for the 100 per cent charge at both properties. To avoid paying a council tax on a property, it has to be unoccupied and unfurnished.

Quite separately – but as part of the overall strategy of raising so-called wealth taxes “until the pips squeak” as former Labour Chancellor Denis Healey infamously said – the UK and Scottish governments are planning to introduce two new council tax bands, I and J, to become “mansion taxes”.

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Dogmatic zealotry

In Scotland, the SNP proposes band I will be based upon band D with a multiplier of 2.886, while band J will be based upon a multiplier of 4.628 – in Edinburgh this would mean an annual liability of £4,692.28 for Band I and £7,525.35 for Band J.

These would be punishing enough for any single home owner, but there will be some where it is a second property. If an owner’s primary residence happened to be in Aberdeen or Aldershot and the second home happened to be in Edinburgh, the council’s second home surcharge would turn Edinburgh’s mansion tax liability into £18,769.12 for band I and £30,101.43 for band J.

Any idea these sort of taxes will not distort the property market is dogmatic zealotry. People will alter their behaviour looking for legal workarounds and may simply sell up. Some will have to take a hit on CGT which, on property, usually taxes inflationary growth of value rather than value rising due to improvements. What it will not do is provide housing for rough sleepers or people on social housing waiting lists. It is purely a policy built on destructive green-eyed envy that punishes ambition and success.

Edinburgh is Scotland’s urban window to the world and, for the benefit of everyone, we should be encouraging more wealthy ownership here, not punishing it.

Brian Monteith is a former member of the Scottish and European parliaments and senior advisor to the Tax Reform Council