Tax on home improvement

Home improvement tax on Harrow’s sheds, conservatories and bathrooms

Concern over secret government moves to annual council tax revaluations

Local homes in Harrow face a ‘home improvement tax’ on the likes of sheds, conservatories, double glazing, extensions and bathrooms, under Labour’s plans for annual council tax revaluations, warned Councillor Bob Blackman, Assemblyman for Brent & Harrow.

·            Annual revaluations now ready say Gordon Brown’s tax inspectors: Government documents have revealed that a ‘Big Brother’ council tax revaluation database is being rolled out across England. Council tax inspectors have stated that annual revaluations are now possible thanks to new American technology.  Currently under the council tax system, material changes to a home – like home improvements - are not taxed until a property is sold or until there is a revaluation. Annual revaluations would mean that any home improvements would be taxed at every revaluation.

·            Rolling revaluations introduced by stealth in Northern Ireland: In April, a new ‘house price tax’ is being introduced in Northern Ireland as a pilot for England. Under this system, any ‘material’ changes to the property – including new sheds, double glazing, patios, bathrooms, conservatories and extensions – will result in a larger tax bill in the year after the change is completed. In effect, local residents face a ‘rolling revaluation’.

·            Regular revaluations backed in Scotland and Wales: In Scotland, the Lib-Lab review into town hall finances has recommended annual revaluations, as well as a house price tax. The Labour-run Welsh Assembly Government has also called for bi-annual council tax revaluations. This is despite the fact that the 2005 Welsh council tax revaluation saw four times as many homes move up rather than down; the Assembly Government admit that such a move to regular revaluations will be seen as “increases in tax revenue being the main driver”.

Bob Blackman said:

“I am very concerned that Labour are preparing to introduce a new home improvement tax, on top of stamp duty. Millions of pounds of taxpayers’ money is still being spent on developing a sinister Big Brother database of every home in Harrow. Gordon Brown’s council tax inspectors are paving the way for annual revaluations - to tap into and tax changes in house prices and the DIY boom.

“Taxing home improvements, such as sheds, double glazing and conservatories, is an yet another stealth tax on family homes, punishing those who have worked hard and saved. Tax inspectors have been given the invasive power and tools to barge inside and inspect your home, and log and record every feature – including the number of bedrooms and bathrooms.

“Not only is this a sign of more stealth taxes to come, but it is an unwelcome assault on the civil liberties and privacy of local people. Conservatives are vigorously opposing these plans.”

Notes to Editors

ANNUAL TAX REVALUATIONS PLANNED VIA BIG BROTHER DATABASE – IN ENGLAND

Annual revaluations now possible say council tax inspectors

Conservatives have forced the Valuation Office Agency – England’s council tax inspectors - to publish a secret presentation - made to international tax inspectors at a conference in Belfast in August. They admit that the English council tax revaluation database is being developed and rolled out and will enable “annual revisions” to council tax property lists.

“Electronic data - Fields Captured

• No of Floors (Houses and Bungalows only)
• Type
• Heating
• Age
• Parking
• Area
• Conservatory Type
• Modernisation date
• Lowest Floor Level (Flats and Maisonettes only)
• Conservatory Area
• No of Rooms
• Outbuildings
• No of Bedrooms
• No of Bathrooms
• Value Significant Code” (p.20)

“The advantages of using an automated valuation model are significant.

• Full transparency and public access
• Consistency
• Speed
• Low Cost
• Enables Annual Revisions” (p.35).

In the presentation, the Valuation Office Agency admit that despite the delay in the English revaluation, their Computer Assisted Mass Appraisal System is being rolled out – with support from the American firm, Cole Layer Trumble (CLT).

“VOA Council Tax AVM [Automated Valuation Model] Data Project

• Summer 2004 -Ministerial approval granted to continue AVM development.
• American company CLT (Cole Layer Trumble) appointed to work with project team.
• 20^th September 2005 –UK Government postpone Council Tax Revaluation
• Late October 2005 –Ministerial Approval granted to continue development of AVM.
• Beginning of October 2005 1.8m sales verified & validated. Target now to maintain 1m sales per year.
• VOA has “baselined” models across England – IT capability to deliver in excess of 21.5m AVM estimates.”

(pp.19, 23)

David Tretton, Rating & Central Valuation Officer, Valuation Office Agency, “Where is the World of Property Valuation for Taxation Purposes Going?”, Presentation to Commonwealth Heads of Valuation Agencies Conference, Belfast, August 2006

Full document available at: http://www.conservatives.com/pdf/voa-tretton.pdf

Big Brother “domestic property database of value”

Labour Ministers have given explicit authorisation for the development of the controversial council tax database – despite the postponement in the English council tax revaluation. This is confirmed by a staff notice posted on the Valuation Office Agency’s intranet, obtained by Conservatives.

“I am please to say that we have agreed with Ministers that we will complete the job of developing the Automated Valuation Model, or AVM, and enhancing the data it depends on, and then keep it up to date... Ministers have agreed that we should carry on with the programme of data enhancement until that is finished, and complete the calibration and baselining of the Model. This will enable us to use the AVM for current work, to provide data to support policy decisions, and as a domestic property database of value across government and beyond.”

Source: Valuation Office Agency, Moving the agency forward following the postponement of the council tax revaluation. (Hansard, 3 May 2006, col. 1726W. Full document – http://www.conservatives.com/pdf/voaintranet.pdf)

GORDON BROWN’S TOWN HALL FINANCE REVIEW – BACKING ANNUAL REVALUATIONS

Gordon Brown’s review into town hall finances in England is being conducted by former Labour councillor, Sir Michael Lyons, and is to report in March 2007 after a series of delays. As well as actively considering introducing the Northern Ireland house price tax system, he has said is also minded to back annual revaluations – supported by the trade bodies representing the council tax inspectors and valuers. Sir Michael Lyons has said:

“Whilst council tax is a hybrid, it has got a property base and therefore there is everything to be said for it being revalued very regularly. The technology is at hand, we can do this...  Let me say, we have all the skills and VAO has prepared itself for revaluation, but it is not a task that, though complex, is beyond us. Indeed, there are other places in the world which have now moved to annual revaluations and it can be dealt with. Of course, the more frequently we revalue the smaller the number of properties at any point in time that are affected. The good policy will take you towards more frequent revaluation.”

Sir Michael Lyons, Evidence to the ODPM Select Committee, 19 June 2006, Q597-598.

http://www.publications.parliament.uk/pa/cm200506/cmselect/cmodpm/uc977-vii/uc97702.htm

ROLLING REVALUATION INTRODUCED BY STEALTH IN NORTHERN IRELAND

New house price tax

As a testing ground for the forthcoming English council tax revaluation, Labour Ministers are this April rolling out a revaluation in Northern Ireland, with a revised system of local taxation. The new system is known as a ‘Discrete Capital Values’ model, where a single tax rate is applied to the house price, each year - akin to a stamp duty being levied on every home every year.

Under the new house price tax system, any material change to the property will result in a higher valuation (and hence an automatic hike in the local tax bill) in the immediate year after the change was made.

“Mrs. Spelman: To ask the Secretary of State for Northern Ireland whether a material change to a domestic property without a change to the ownership of the property will result in a change to the domestic rates bill under the new system for local government finance in Northern Ireland.

Mr. Hanson: A material change to a domestic property, without a change to the ownership of the property, will result in a change to the domestic rates bill under the new system provided that the material change results in a change in the capital value of the property. It should be noted that alterations to property will not affect liability until the next rating year following their revised assessment”.

Hansard, 30 November 2006, col. 872W.

http://www.publications.parliament.uk/pa/cm200607/cmhansrd/cm061130/text/61130w0015.htm#06113089000961

Sheds, double glazing, patios, conservatories and extensions to be taxed

The ‘Computer Assisted Mass Appraisal’ system being used identifies a whole series of different property attributes that would constitute a ‘material change’.  These include double glazing, garden sheds, garages, parking spaces, patios, porches, conservatories, attics and any extension to the dwelling.

Source: Valuation & Lands Agency internal documents, obtained via Hansard, 13 February 2006, col. 1534W.

Full document: http://www.conservatives.com/pdf/revaluation-codes.pdf

Any increase in the area of ‘habitable space and ancillary space’ would also result in any increased bill. Conservatives have obtained the technical documents which tell the tax inspectors how to classify the space - and tax it at a £/m² rate.

Source: Valuation & Lands Agency, Domestic Revaluation Guidance Note 25: Habitable Space and Ancillary Space, ibid.

Full document: http://www.conservatives.com/pdf/revaluation-space.pdf

Home improvements in Britain will be taxed in the forthcoming council tax revaluation

By contrast, under the current council tax system, home improvements do not change the council tax bill of any owner – provided there is no council tax revaluation. The (English) Valuation Office Agency states:

“Major home improvements, like adding an extension, can increase the capital value of a property so that a higher council tax band could be justified. However, when council tax was first introduced in 1993, it was decided that the council tax band on an improved property would not be increased until there was a revaluation or a ‘relevant transaction’.

The term ‘relevant transaction’ simply means that the property has been sold as a freehold, or the lease for the property has been transferred for a period of seven years or more. A freehold sale also covers the situation where a leasehold owner pays a ground rent to a landlord who owns the freehold of the property, and the freehold only is subsequently sold... The only exception to this is at times of revaluation when all bands are reviewed according to the physical characteristics of the dwelling when the list comes into effect, whether or not ownership has changed.”

http://www.voa.gov.uk/council_tax/increases.htm

ANNUAL REVALUATIONS - BACKED IN SCOTLAND

In November 2006, the Lib-Lab Scottish Executive published its report, by Sir Peter Burt, into town hall finances in Scotland. It recommended that council tax is replaced with a 1% annual tax on the value of every home, every year – just like the system being introduced in Northern Ireland from April.

http://www.localgovernmentfinancereview.org/report/report.aspx

In an under-reported move, the report also backed annual tax revaluations. It states: “We recommend that domestic properties should be subject to regular revaluations. Initially this would be every 5 years but the ideal would be to move to annual revaluation. The SAA [Scottish Assessors' Association – Scottish council tax inspectors] suggest that that is an objective achievable in the relatively near term. The revaluation cycle should be underpinned by statute” (p.147).

BI-ANNUAL REVALUATIONS – BACKED IN WALES

Wales has already had a council tax revaluation in 2005, where 1 in 3 homes moved up a band, but only 8% of homes moved up a band. As a result, in the first year alone, tax receipts from council tax soared by 10%. The full effects of the revaluation are still be experienced, as ‘transitional relief’ is slowly being phased out, pushing some homes up two or three bands.

Yet despite this, the Labour-run Welsh Assembly Government is now calling for more frequent revaluations – in their unreported submission to the Lyons Inquiry, suggesting that bi-annual revaluations would be best:

“Our experience of the recent council tax and business rates revaluations here indicate that the periods between revaluations, even in the case of business rates may be too long.  This was reinforced by evidence from a visit to Denmark where the frequency of revaluations seemed key in maintaining the perceived fairness of the taxation system amongst taxpayers.  Therefore, the experience of some other countries operating a property-based system of local taxation is that the period between revaluations is crucial.  In Denmark there are bi-annual revaluations for both business and domestic properties.  This significantly reduces the chances of steep rises between valuations, improves the transparency of the system, facilitates easier planning and budgeting for the tax payer, reduces the number of appeals against valuations, smoothes changes in the council tax base for the purposes of calculating the local government revenue settlement and means that issues relating to accountability for decisions relating to the level of local taxation are minimised.  However, these benefits would need to be made clear to the tax payer to address the potential perception of increases in tax revenue being the main driver.”

Welsh Assembly Government, Submission to the Lyons Inquiry into Local Government, March 2006

http://new.wales.gov.uk/about/departments/dlgc/localgovculturepubs/localgovpubs/lyons/lyons?lang=en

ENDS