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SECTION 3: LOCAL TAXES
Local taxes are an important element of financing for local authorities accounting for a quarter of all Scottish local authority revenue income. There are essentially two different types of tax levied by local authorities, domestic taxes (council tax) and non-domestic taxes (Non-Domestic Rates - NDR).
Domestic Taxes
Council tax accounts for over 11 per cent of total local authority revenue income. Local assessors place each dwelling into a band according to its estimated value in 1991. There are 8 bands: A is the lowest and is for dwellings valued at less than £27,000 while H, the highest band, is for those valued at greater than £212,000. Each local authority then sets the amount of council tax payable by residents of band D properties within its area and for each other band a given proportion of band D tax is payable.
Certain discounts and benefits are available to people, such as carers, people with low income and people living alone. Some dwellings can also be exempt from council tax either for a limited period or indefinitely. Many of these property exemptions apply to unoccupied dwellings but there are also exemptions for dwellings where all of the residents are students or are under 18 years of age.
Non-Domestic Rates
The principles of Non-Domestic Rates were established in the Lands Valuation (Scotland) Act of 1854. This Act also provided for the appointment of Assessors who are responsible for valuing both domestic and non-domestic subjects. Non-Domestic Rates are calculated on the basis of a non-domestic subject's Rateable Value and the prevailing Rate Poundage as explained below.
All non-domestic subjects are valued by local Assessors. Every five years a revaluation occurs where the value of every non-domestic subject is reviewed and altered where appropriate. The latest revaluation took effect on 1 April 2005 (based on rental values at 1 April 2003). The next Revaluation is scheduled to take effect on 1 April 2010. There is an appeal system for rate payers who consider that the rateable value of their property is incorrect. Prior to the 2005 Revaluation, certain major classes of subjects had their rateable values prescribed by Order. Following a review, however, Government decided that those industries in prescribed assessment should be conventionally valued and under Section 32 of the Local Government in Scotland Act 2003, the rateable entries of the former prescribed industries are assigned, for valuation purposes, to the valuation roll as a single entry.
The rate poundage is the multiplier applied to the rateable value of a property to give the rate bill. Until 1989 rate poundages were set by local authorities. In 1989, however, the then Government decided that there should be a single poundage rate in Scotland which would be equal to the English rate. In the five years to April 1995, rate poundages were set for each local authority area with the aim that they would converge on a single all-Scotland poundage. Following the 1995 Revaluation a single all-Scotland poundage was set.
The poundage for 2005-06 was set with the aim of ensuring that Non-Domestic Rate income would, after accounting for future appeals losses, be lower in real terms. Because the total rateable value of subjects in Scotland increased due to the 2005 Revaluation and the bill is based on rateable value multiplied by the poundage figure, the poundage was decreased accordingly. For 2007-08, full equalisation of the Scottish poundage rate with that of England was achieved.
The figures for income in Table 13 are shown net of reliefs. Relief arrangements apply to subjects including, but not exhaustively, qualifying village stores, post offices, petrol stations and public houses/hotels, stud farms, empty property, subjects occupied by charities and premises used for religious worship. In addition, the Transitional Arrangements scheme assists businesses which experience a large increase in their bill following the Revaluation and the Small Business Rate Relief Scheme aims to relieve smaller subjects of a portion of their rates burden.
Each council, having collected its taxes, pays the Non-Domestic Rates into a central pool. The funds in the pool are then redistributed amongst authorities on the basis of population. The amount to be re-distributed from the pool is known as the Distributable Amount ( DA) and is set by the Scottish Government before the start of the financial year in question. It is based upon a forecast of the NDR income and prior year adjustments, and is therefore not guaranteed to match the total contributions to the pool for that year. The DA forms part of the Aggregate External Finance ( AEF) which represents the Government's revenue funding for core local government services. As the AEF total is guaranteed this means that any reduction in the amount of Non-Domestic Rates collected is compensated for by a corresponding increase in Revenue Support Grant and vice versa.
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