COUNCIL TAX

Council Tax is collected by your local council to pay for services in your community. Every residential property is put into a tax band between A and H, based on its size, location and a few other factors. The current system was introduced in 1993, replacing the Community Charge (the Poll Tax).

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Very! It raises over £36 billion per year and provides 32% of local government funding for vital services like policing, fire, education,  social care and keeping the streets clean.

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Your Council Tax band is based on your location and the size of your property relative to others in your immediate area. Bigger homes pay more than smaller ones, the factors considered are type of home (flat or house) number of bedrooms and floor area. Each home valued is assigned to one of 8 bands (A-H).

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No. Many of those that do, receive a significant discount. There are around 23 million homes in England, almost 8 million of which received some form of discount including reductions to empty homes or cheaper rates for second homes. There are also  55,000 people who registered their holiday home as a business to avoid paying any Council Tax at all!

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For the reasons mentioned here and in our manifesto, Council Tax should be abolished in favour of a fairer tax. Our proposed Proportional Property Tax would allow us to replace Council Tax, Stamp Duty and the Bedroom Tax with a single flat rate tax that does not reduce revenue for public services, but does cut the tax bill for 75% of households in England.

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Council Tax was created in 1993 in a rushed and poorly thought out attempt to replace Mrs Thatcher’s unpopular and divisive Poll Tax. Since its creation, failures to update Council Tax in response to the ever increasing huge differences in house price growth in different parts of the country have ultimately made Council Tax as unfair as the Poll Tax.

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Expensive properties and areas of the country with greater property wealth pay relatively less in Council Tax as a percentage of the property value. This unfairness has been exacerbated by a lack of revaluations since 1991. The effective tax rate on residential property is just 0.2% in London compared to 0.7% in the North East.

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The number of properties and the value of those properties varies in each local authority, leading to differences in how much tax can be raised. Secondly, individual councils have some discretion to increase their Council Tax rates, leading to further differences. Finally, areas with lots of high value properties are able to meet their funding needs while setting a lower rate of Council Tax overall.

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This varies considerably according to where you live and is part of the reason the current system is so unfair. One of the country’s wealthiest areas (Hammersmith and Fulham) cut and then froze Council Tax from 2014-18. In the same period the average rise for other households was around 4% per year, a 14-20% increase in comparison.

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As with the Poll Tax’s predecessor, Domestic Rates, successive governments have avoided updating property valuations because such a move would be unpopular in their wealthier constituencies. All political parties necessarily rely on voters in wealthier areas to win elections, and updating property values for Council Tax would have meant a significant rise in taxes for these voters. They have often been supported in this by much of the mainstream media, who have consistently opposed reform.

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STAMP DUTY

This is the tax applied when a person buys a residential property. A buyer’s budget will necessarily be reduced by the amount they will need to pay in Stamp Duty. Since introducing Stamp Duty there have been numerous rate increases.

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Stamp Duty is collected centrally and funds central government programmes.

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The government depends on important tax receipts to pay for all the services we rely on. Stamp Duty on domestic homes in England raises around £8 billion a year.

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Stamp Duty is based on the purchase price of the property and the following scale:   

Below £125,000 = 0%

£125,001 – £250,000 = 2%

£250,001 – £925,000 = 5%

£925,001 – £1.5 million = 10%

Above £1.5 million = 12%

Second homes are taxed at a higher rate.

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Stamp Duty makes home ownership harder to attain. It also discourages older people from downsizing and increases the costs of moving home for all. Unlike most taxes, Stamp Duty is only paid by a small minority of the population each year. Around 1 million people pay the tax and have to cover the cost of raising the £8 billion the government needs.

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Abolishing Stamp Duty would remove a barrier to homeownership for millions of young families and make it easier for older households to downsize. Our proposed PPT would instead spread the burden of Stamp Duty across 23 million homes, which would mean that, instead of one large tax bill each time someone buys a home, the tax is spread across the period of property ownership.

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London and the South East. Homes in these areas currently pay a whopping £5 billion a year, which is 61% of Stamp Duty receipts. Compare this with the whole of the North, which pays just £830 million.

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Proportional Property Tax

The Basics

The Proportional Property Tax (PPT) is a single flat rate tax charged annually at 0.48% of a property’s value. So for example, a property valued at £200,000 would pay £960 each year.

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This is the rate required to raise the same amount in revenue as the current system.

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Yes, we did and we understand the arguments for it. We are, however, a nation of home owners and data on house prices is far more prevalent than that on rentals. As a data driven campaign, it was important for us to be able to measure the impact of a policy as widely as possible. We also believe that the majority of homeowners have a better understanding of their house price but would be less certain of their rental value.

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Council Tax, Stamp Duty and the Bedroom Tax.

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The Bedroom Tax, or under-occupancy penalty, is a cut to your housing benefit if you have a spare bedroom in a council or housing association property. It is both unfair and has failed to improve housing efficiency as intended. To see why, take the example of a spare room becoming available when a member of a household moves out. If the remaining residents cannot afford their housing costs after receiving a cut to their housing benefit or universal credit, and are unable to move home, this leaves them in a very precarious position. We believe that those on benefits should not be penalised for having a spare room when others are not.

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No. The PPT will not decrease tax revenues. The tax will be collected by central government and distributed to local councils accordingly, as is the case under the current system

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  • More tax revenue gained from empty and second homes. 
  • Fairer tax rates for less expensive homes across the country.
  • Incentives for developers to begin building homes as soon as they receive planning permission, rather than waiting indefinitely in case the value of the land increases.
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We believe that the owner is in a better position to pay and that it simplifies the system from a collections and administrative perspective. This solution also enables us to offer a deferral mechanism for those who may be struggling to pay. And finally, a majority of homes are owned by those that live in them.

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Yes, we do think that landlords may pass on some or all of the Proportional Property Tax (PPT) to the tenant through increased rent. However, there are a few other elements to consider.

  • 75% of properties will see a reduction in Council Tax (CT). Therefore, it is likely that the landlord will pay less PPT than the tenant is currently paying in CT. As a result, the tenant will receive a net gain as future rent + PPT will still be less than the current rent + CT.
  • Our policy taxes unused, underused properties and unbuilt planning permissions, as well as second homes. Subsequently, we should see an increase in the supply of rental houses and a possible decrease in rents.
  • Should the tenant wish to buy his or her own property there will no longer be a Stamp Duty charge so it could be cheaper to get on the property ladder.
  • The removal of Stamp Duty makes it cheaper and easier to downsize which should bring more, and often larger, properties to the market.
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Under the PPT, those who cannot afford to pay the tax have the option to defer payments and pay a modest interest rate. You can pay your tax bill when your situation allows you to do so, such as upon sale of the property. There will be no more court cases for bills in arrears as happens regularly under Council Tax.

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This is a tax cut for 17.9 million households. Across the country, the tax is revenue neutral.

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Fairness

Everyone pays the same flat rate, unlike the current system where more valuable homes pay less as a percentage of the property’s value.

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A flat rate tax is one where the tax rate remains the same but the amount raised increases with the value of the item taxed. This is  fair – we should all pay the same rate.

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Second homes remove properties from the market that could be housing local families, meaning the government must fund new roads and schools to supply new homes elsewhere. The higher rate ensures that these homes pay a fair share for the costs the rest of society must shoulder.

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Foreign homeowners are less likely to pay Income Tax, National Insurance, Capital Gains Tax or Inheritance Tax. However, they still benefit from the services that the rest of us fund, including the legal system, the transport network, schools and even local parks. These services also all make their properties more valuable. Our solution ensures foreign home owners pay their fair share in funding these important services and infrastructure.

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No. Currently Capital Gains Tax is not paid when you sell your principal home. If you sell a second home or an investment property you pay tax based on the profit you have made. Our policy does not change this.

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No. All properties will pay the tax. Those who register offshore will pay double the rate, because unlike other assets you cannot move a home offshore. If these owners do not pay, then a charge will be registered against the property for collection on sale.

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Properties in London and the South East have seen the greatest increase in value since council tax was introduced. This means that for almost three decades they have benefitted from lower Council Tax bills, enabling these households to spend more on mortgages. Households in London in particular have also benefited from rising house prices linked to the government spending large amounts of money raised from all taxpayers on projects such as the Olympic redevelopment, Crossrail, Jubilee Line extension and other public transport subsidies.

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No one will have to sell their home. If you cannot pay in the short term you can defer the tax (paying a modest interest rate).

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The Benefits

Almost 18 million households will see a tax cut. There will also be less red tape for households buying a house due to the removal of Stamp Duty. And 8.7 million tenants (as opposed to owners) will no longer be paying Council Tax.

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The greatest benefits will come from the reduction of tax bills for millions of households outside London. This means people will have more money to invest and spend in their local communities.

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Yes. They will neither have to pay Stamp Duty, nor fill in paperwork to apply for exemptions. We would also expect to see more family homes come onto the market as older households downsize.

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The proposal retains funding for pensioners currently provided through Council Tax support. Those liable for the tax will have the option to defer payment until sale of the property or choose to downsize or move to locations with lower house prices. They would benefit from not paying Stamp Duty and enjoy lower PPT bills. Indeed, research shows that many older households would like to downsize but the cost of Stamp Duty prevents them from doing so.

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Great question.

1. Valuable properties will pay the 0.48% proportional rate, something they are not doing currently.

2. Empty, second and foreign homes will pay 0.96% proportional rate on the value of the property.

3. Stamp Duty remains in place for second and foreign home buyers.

4. The number of bill payers will be reduced by at least 4.5 million, saving £400 million in administration costs.

5. We have removed a number of discretionary exemptions and loopholes.

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Common Misunderstandings

This is a tax on property wealth, not overall wealth. The amount you owe will be directly linked to the value of the property you own. This means we all pay the same rate but lower income households will pay less tax.

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No. This tax would charge everyone the same rate, unlike a Mansion Tax, which charges more expensive homes a higher rate.

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No. This tax is based on the overall value of your property, unlike the so-called “Garden Tax”, which uses a square metre rate and applies it to the amount of land your home takes up.

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No.  This important reform solely affects residential property owners.

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Other Considerations

This policy could certainly be introduced in Wales and Scotland without permission from Westminster. Northern Ireland already has a very similar system to the PPT.

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Yes. Many modern and successful economies have proportional property taxes, including Australia, several Scandinavian countries, Singapore, Hong Kong and parts of the United States. It’s a tried and tested policy.

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No. It is a much simpler and cheaper system to run. Valuations will use real data from prices paid at sale to keep the system updated. The change from billing tenants to  landlords will save councils the time and money of collecting 8.7 million Council Tax bills.

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The existing Valuation Office Agency (VOA) will continue to be responsible for valuation, though under our system most valuations will derive from actual sales data and recent changes to house values in your area. We believe the government could use the wealth of data it already has to build an algorithm similar to those used by websites like Zoopla and Rightmove in making their estimates. Such a system would allow each and every home to be accurately valued based on its unique characteristics.

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Council Tax could be made fairer by adding many more bands, but those at the top would still not pay their fair share. Moreover, within each band there would be a wide range of house prices all expected to pay the same amount. Only a proportional tax will ensure we pay in line with the real value of our property. Other respected organisations that have looked at Council Tax reform have also rejected this idea.

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Yes. However, it is more difficult to regularly value land than residential property. In any case, property values and land values are closely related so that calculating the tax on the value of the property does not lead to a very different result.

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Yes, we did consider it. To scrap Inheritance Tax would cost around £5 billion per year which would have required the PPT rate to increase from 0.48% to 0.58%. This would have meant fewer households would have gained from this reform, but this is also a matter of principle. Due to the high threshold (married couples do not pay any Inheritance Tax up to £1 million) less than 5% of estates actually pay the tax. Removing Inheritance Tax as part of PPT effectively requires every property owner up and down the country to cover the bills of the few who actually pay Inheritance Tax. This did not seem fair.

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You would pay monthly as with the current system.

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Yes. The policy would be phased in over a three year period.

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By scrapping Stamp Duty, we would expect to see an increase in the value of homes. However, this will be offset by some higher value homes paying more under the PPT than they currently do under Council Tax. In many cases the two changes would balance out to leave property prices unchanged.

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Where planning permission is granted, the tax will be  based on the number of homes for which permission was granted. The nearest equivalent home (in terms of location, type and size) would be used to determine the value the completed home or homes would sell for. Land will be taxed whether it is developed or not, encouraging landowners to build or sell to someone who will.

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Property taxation is a fair way to ensure people contribute to society based on their wealth, and are hard to avoid given the impossibility of hiding physical property offshore. The OECD has argued that “recurrent taxes on immovable property are the least harmful tax” and are to be favoured over income, VAT and corporate taxes.

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Yes. Prior to the 1990s the UK’s domestic property tax was the Domestic Rates System, under which a percentage of the property’s implied rental value was taxed by local authorities. This meant that the tax was linked to property values, although this was complicated by local variation, a system of rebates and a lack of revaluation after 1973.

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Yes. Our policy is based on recommendations from many of the leading think tanks in the UK. Within all the major political parties there are groups who have called for a proportional property tax.

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About Us & Next Steps

Fairer Share is the name of our campaign to replace Council Tax with a fairer system. It is a Community Interest Company – a business with social objectives whose profits are reinvested for that purpose in the community, rather than being used to benefit shareholders and owners.

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Andrew Dixon – former Goldman Sachs, founder of ARC InterCapital, The Woodhaven Trust and Fairer Tax Campaign CIC.

Dominic Humphrey –  Research Fellow and data scientist specialising in property policy.

Max von Thun – policy expert and commentator with a wealth of experience across politics, think tanks, journalism and the private sector.

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Adam Smith Institute

Barrow Cadbury Trust

Richard Blyth

Patrick Bond

Mark Braund

Sam Brittan

Centre for Progressive Policy

Sir Winston Churchill

Civitas

Coalition for Economic Justice

Common Wealth

Generation Rent

Green Party

Jock Coates

Philip Collins

Sir Andrew Dilnot

Henry George

Henry George Foundation

Ted Gwartney

Institute for Economic Affairs

Institute for Fiscal Studies

Institute for Global Change

Institute for Public Policy Research

Intergenerational Foundation

International Property Tax Institute

Jericho Chambers

Joseph Rowntree Foundation

Dr. Gavin Kerr

Labour Land Campaign

Land for the Many

Land Justice Network

Land Research Trust

Tim Leunig

Liberal Democrats

London Renters Union

Toby Lloyd

David Lloyd George

Caroline Lucas MP

Laurie Macfarlane

James Mirrlees

More United

John Muellbauer

New Economics Foundation

OECD

Onward

Oxfam

Duncan Pickard

Plaid Cymru

Julian Pratt

Priced Out UK

Progressive Capitalism

Promoting Economic Pluralism

Andrew Purves

Resolution Foundation

Rethinking Economics

RSA

Josh Ryan-Collins

Guy Shrubsole

Sir Roger Scruton

Shelter

Tax Justice UK

Taxpayers Against Poverty

Tax Watch UK

Tony Travers

Adair Turner

Andy Wightman

Carol Wilcox

Martin Wolf

YIMBY

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Fairer Share received a grant from the Woodhaven Trust, a charity focused on the reform of unfair property taxes in the United Kingdom.

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We need a large-scale popular movement to inform the wider public of the importance of property tax reform, and give them the tools to champion reform with politicians in Westminster. By signing our petition, you can help create this movement.

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Tax will never be welcomed, but it should at least be fair. With the support of you, your family and your friends, we can bring about change and improve the lives of millions of people up and down the country.

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If you have any questions, please email the team at support@fairershare.org.uk.

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