Revaluation – what’s to fear?

John Moss says properties should be reassessed for their Council Tax band when they are sold

There are strong arguments in favour of a general revaluation of all domestic properties for Council Tax purposes. The most compelling is that Council Tax banding is based on 1991 values and therefore takes no account of differential changes in value over the last 21 years.

Those who live in the most expensive parts of the UK have seen their values rise by 350-450%, those in the lowest values areas have seen them rise just by 150-200%. To put that in to simple language, if you built identical four bedroom houses today, one in Hammersmith worth £1.4m and one in Durham worth £550,000, for Council Tax purposes the house in Durham would be in Band H, but the house in Hammersmith would be in Band G. This is because of the perverse effects of “de-indexing” which I described in my earlier article.

The different rate of change of value means that those living in expensive areas which have seen high rates of growth are benefitting twice. First from the higher rates of growth increasing the value of the equity in their properties and second - because of the lack of political will to revalue – from lower taxes than they should be paying. So we should revalue. The question is how?

If we want to adjust for the changes in values we have seen over the last 21 years, which will increase the tax take from those who have benefitted most from house price inflation, then we can do that quite simply. Take the house price index figures for each Local Authority area from the Land Registry, (these only go back to January 1995, so I have used those figures to illustrate the likely effects), and apply them to every property in each band, assuming their value is the top figure in that band, or £500,000 for those in Band H. This will take about half an hour for each Local Authority area and is simply a mathematical exercise.

Then, adjust the national Council Tax bands by the national index figure and re-allocate the properties to the new band accordingly. The results can be seen in the tables below. The effect will be to take properties down bands in less expensive areas like Bridgend, but see many properties move up bands in place where growth has been faster.

However, this will make only a small difference to what most people actually pay as the total amount of tax each Local Authority needs to raise from Council Tax will remain unchanged. This will mean that in councils where lots of properties go down bands, the rates applied will have to rise. So you may drop from Band D to Band C – as in the Bridgend example - but the band C rate payable will rise to maintain the level of tax collected. In areas where lots of properties go up in to higher bands, then rates payable can fall on the same logic. At the margins, there will be properties which move two or even three bands on this basis and they will see actual changes in the amount they pay. Those going up bands – Band A properties in Hammersmith for example would move to Band D – may well wish to appeal this and if they were not close to the top of their band when the original valuation was done in 1991, then they may have a case. It is also likely that there will be real evidence of a more recent sale on which to base any appeal. This will all help improve the quality of the valuation exercise.

The alternative to seeking to keep current actual receipts from Council Tax constant within each council would be to adjust the central Government grant to councils to reflect the change in Council Tax receipts. This would mean residents seeing lower bills from councils in lower value areas, but those councils will become even more reliant on central Government grant, whilst those in higher value areas would be reliant for much more of their income from their residents, whose bills would rise in some cases, substantially.

I do not favour this latter approach, but the adjustment ought to happen and it can be done over time if the former approach is adopted and then a system is established which automatically keeps values up to date.

There are two choices here. One is to apply the index figure again at regular intervals, say every three or five years, but this would again throw up appeals and challenges and it would be always subject to cancellation because of political expediency.

A better solution would be to adjust the value of individual properties when they are sold, or when significant improvements are carried out, easily identified by planning consent or building control approval being required. As buying a house or doing expensive work to one are major financial decisions, it is not unreasonable to ask that buyers or owners factor in a potential rise in Council Tax from a move up to a higher Band at that time.

This will result in different properties in the same street being in different bands, but it will more closely relate the banding to the current value and protect those who do not move or improve from arbitrary adjustment in future. It will also happen automatically and constantly and end the problem we see now where maintaining up-to-date valuations is subject to the whim of politicians with an eye on electoral advantage.