ITEM NO.8

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REPORT OFTHE CITY MAYOR

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TO

Council

ON

16January 2013

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TITLE: ADMINISTRATION OF COUNCIL TAX DISCOUNTS AND EXEMPTIONS

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RECOMMENDATIONS:

That the City Mayor recommends that council agree the proposed changes to the administration of council tax discounts and exemptions that are detailed in this report.

In accordance with central government legislation that allows council’s to have local arrangements regarding somecouncil tax discounts and exemptions, the following proposals are recommended for implementation from 1 April 2013:

  1. Charge full council tax on furnished second homes (currently where10% discount is given)
  1. Award a 10% discount for a period of up to twelve months on properties that are unoccupied and which are undergoing major repairs or structural alterations.After 12 months the full council tax charge will apply.(currently Class A exemption applies which is due to be abolished from 01/04/13)
  1. Award a 50% discount for a period of up to the first two calendar months and then charge full council tax on empty and substantially unfurnished properties. (currently Class C exemption applies which is due to be abolished from 01/04/13)
  1. Charge an additional empty homes premium of 50% of the full council tax charge for any properties that have been empty and substantially unfurnished for period of over two years.

EXECUTIVE SUMMARY:

This report provides:

  • Details of the legislative changes affecting certain council tax discounts and exemptions.
  • The potential for increased revenue should the proposals be implemented is provided.
  • The changes affect some second homes and some empty properties in the city.
  • The report requests a decision to be made on the course of action to be taken with regard to the changes in council tax legislation that were laid on 30 November 2012.
  • It has already been outlined in the report dated 21 November 2012 regarding theLocalised Council Tax Support Scheme that there is expected to be a financial contribution to the scheme shortfall from increased revenue from council tax.

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BACKGROUND DOCUMENTS:

Documents available on DCLG website

Working Papers internal and external sources

Local Government Finance Act 2012

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KEY DECISION:YES

DETAILS:

Financial Implications

The proposals are likely to provide incentives to bring more properties back into occupation.This will increase the level of council tax revenue and provide the added benefit of an associated increase in the New Homes Bonus grant if the existing rules continue. A prudent estimate of the likely level of increased council tax revenue is around £0.7m which will be required to support the shortfall in funding for the Local Council Tax Reduction Scheme.

Current Arrangements

In accordance with the current council tax scheme there are a number of discounts and exemptions that relate to personal and property elements. Where a property is exempt from council tax there is no charge to pay for the period of the exemption.

Where a discount is currently applied, for the period of the discount there is less council tax to pay depending on the type of discount awarded.

Proposed Arrangements from 1 April 2013

The table below shows the differences between the current arrangements and the proposed arrangements.

Table 1

Measure / Description
The legislation enables council’s to have the discretion toaward adiscount from 0% up to 50%.
The proposal is to charge full council tax on furnished second homes.
Currently under existing rules 10% discount is given for this type of discount.
These are properties where the resident has their sole or main home elsewhere or properties that are furnished but unoccupied. For example properties that are furnished and not let or when a resident has moved and left their belongings are currently given a 10% discount.
The legislation enables council’s to have the discretion toset the level of discount from 0% up to 100% for a maximum period of 12months.
The proposal is to charge 90% council tax on properties that are unoccupied which require or are undergoing structural alteration or major repair for 12 months and after this period the full charge will become payable.
Currently under existing rules an exemption applies for the first 12 months where there is no council tax charge payable and after this period the full charge is then applied.
This class A exemption is abolished from 01/04/13 and instead replaced with this class D 10% discount.
The legislation enables council’s to have the discretion toaward the level and period of discount from 0% up to 100%.
The proposal is to charge full council tax on empty and unfurnished homes when they have been empty for over 2 calendar months.
Currently under existing rules an exemption applies for the first six months where there is no council tax charge payable and after this period the full charge is then applied.
This class C exemption is abolished from 01/04/13 and instead replaced with a class C discount. It is proposed also that 50% discount is allowed for the first two calendar months and then after this period the full charge becomes payable.
The legislation enables council’s to have the discretion to charge up to 150% of the council tax charge for certain properties that have been empty for over 2 years.
The proposal is to charge a 50% premium in addition to the full council tax charge for all properties that have been left empty and are substantially unfurnished for a continuous period of 2 years. That is unless they are excluded because they belong to Class D or Class E discounts which relate to specific provisions in respect of armed forces provisions and property annexes.
This will mean that these properties subject to the 50% premium will be liable to pay 150% of the council tax charge if they have been left empty for longer than 2 years. Currently the full charge is payable in these circumstances.
It is expected that some properties will be billed the additional amount from 01/04/13 if the property has already been empty for over two year prior to that date if this proposal is agreed.

As outlined above, the proposals have been designed tocreate a balance between council tax income generation and to take advantage of New Homes Bonus. However, it is possible in accordance with the legislation to have a number of arrangements.

The proposals in their current form could hopefully assist with the council’s work in relation to managing empty properties. Anyrisk in residents failing to advise the council if a property is empty could result in loss of new homes bonus payments to the council. Having given this matter some consideration, the loss of New Homes Bonus is estimated to be around £0.2m based on an estimated loss of 10% of certain property types. Certain discounts have been partially retained to try to ensure that empty properties are still being identified within the City so assistance can be given to the property owners such as help with re letting properties.

The benefits of adopting the proposals include the following:

  • Incentives for empty property to be reoccupied.
  • Benefitting residents on waiting lists or privately looking for accommodation to let.
  • Supporting the council’s housing strategy
  • Supportingthe council’s priorities as it will enable additional income to be received to support service delivery.
  • Improving the street scene.

Impact on Council Tax Accounts

The following table shows the number or accounts affected by the proposals outlined in the report and the estimated additional revenue that may be available should the proposals be agreed.

The estimates are given using council tax data as at December 2012 and it is to be noted that this data can be variable as council tax is charged on a daily basis. The estimates do not take into account if there are any increases to council tax charges from 1 April 2013 and therefore are based on council tax charges for 2012/13.

Table 2

Measure / Type / Number of Cases / Proposed
Revenue
Position
I. / Furnished Second Homes / 1300 / £159k
II. / Empty homes with Structural Alterations/ Major Repairs / 108 / £109k
III. / Empty and Unfurnished Homes / 1291 / £664k
IV. / Homes that have been empty over 2 years / 553 / £321k
Total / 3252 / £1.253m

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KEY COUNCIL POLICIES:

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COMMUNITY IMPACT ASSESSMENT AND IMPLICATIONS:

A community impact assessment has been carried out attached at Appendix A and has identified that there are no differential equality impacts identified.

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ASSESSMENT OF RISK: High

Failure to make a decision at the appropriate time will mean that the council will be unable to comply with its financial duties in relation to the calculation of the council tax base.

The council will also be unable to fulfil its statutory requirement to give notice in a local newspaper regarding discount changes 21 days before the first instalment becomes due.

In order to carry out the required testing of the council tax software to ensure the correct council tax calculations are applied, it is vitally important that a decision is made at the appropriate time. Any delays may mean that council tax bills would not be issued in time which could affect recovery processes and would also lead to potential loss of income for the council. Certain council tax exemptions are also due to be abolished from 1 April 2013 and therefore a decision must be made on replacements for the affected exemptions prior to this date.

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SOURCE OF FUNDING:

The proposals will reduce the level of discounts and apply a premium on long term empty property. Both of these aspects will effectively increase the council tax base and increase the potential level of council tax revenue. This revenue will be assessed as part of future calculations of the Collection Fund balance which forms part of the council’s budget process.

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LEGAL IMPLICATIONS: Legal advice has been obtained.

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FINANCIAL IMPLICATIONS

The key issues facing the Council are:

  • The changes will mean that council tax collection will be even more challenging. The potential for delayed collection will also increase as customers may fall into recovery cycles.
  • The scheme seeks to protect the overall financial interests of the council; however the estimated income is estimated to be £0.7m. The impacts on collection will continue to be closely monitored.
  • The Council Tax Base is affected by discounts and exemptions. Theapproval of the proposals recommended in this report will mean that there will be an increase in the tax base.

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OTHER DIRECTORATES CONSULTED:Housing Futures

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CONTACT OFFICER: Janet McGrailTel No 0161 793 3339

Phil Prady Tel No 0161 686 6200

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WARD(S) TO WHICH REPORT RELATE(S): All