It has been estimated that the impact of two perfectly legal mechanisms for avoiding council tax may be costing Fife Council substantial sums in lost revenue.
The first, involving second home owners switching from council tax to non-domestic rates, has been highlighted by Fife Liberal Democrats who have suggested that second home owners are gaming the system to avoid paying council tax.
Fife Council’s Head of Revenue and Commercial Services, Les Robertson, confirmed that across Fife, there are 471 properties using a small business rate exception designed for holiday units. He revealed that over the course of the last seven years around 400 householders had switched from paying council tax to non-domestic rates. The vast majority of these receive the small business bonus scheme.
He added, “the issue was raised by the Barclay review and the Scottish Government has confirmed it wishes to close this loophole, although this will require changes to legislation.”
To switch from council tax to non-domestic rates, households have to meet criteria which include installing a water meter to pay water service changes in place of domestic water crates, making arrangements for domestic bin and commercial waste uplifts and having holiday let insurance in place.
Based on a band D charge, the Liberal Democrats said this works out as lost tax revenue of more than £500,000.
Councillor Tim Brett said that while it was great that the kingdom had a thriving tourism industry, the hundreds of second homes across Fife came “with a downside”.
“Local residents will rightly feel angered to learn that so much money is being missed out by the council, because of an albeit legal, but morally questionable loophole. It’s not right that some people are being allowed to continue avoiding paying the tax they owe.”
Scottish Lib Dem Leader, North East Fife MSP Willie Rennie, added: “If these second home owners were all paying the full council tax, there would be half a million pounds more for the council coffers – that would be going to essential services.
“That’s a huge loss, especially when there’s so much pressure on the budget. It’s not right that these holiday lets are not making the same contribution that everyone else is locally, we need a better system that is more fair. It’s not the case that there’s just a few folk making use of this workaround, 471 is a considerable number and this needs to be addressed.”
QV has discovered that using small business rates instead of council tax is not the only way of avoiding council tax. Neither students nor landlords pay council tax and, further, landlords can claim the Summer Vacation Exemption for up to four months for properties that were ‘last occupied by students’. There were 566 such exemptions in NE Fife awarded in 2018, virtually all in St Andrews. Assuming an average tax band E, that works out as a loss to the Council of approximately £400,000.
Given the swinging cuts in the Council’s budget since 2010, due to be followed by £4.8M savings in the coming financial year, these council tax avoidance loopholes are hard to justify, although perfectly legal. As with misuse of the small business rate, closing the Summer Vacation Exemption would require legislation.