Scottish land tax could raise £450 million a year, report finds

Reform of the council tax system into separate property and land taxes could also benefit rural councils and would be “substantial enough to significantly narrow or even completely close upcoming projected budget shortfalls”, the paper says.

In one example, Highland Council was projected to receive almost £97m per year through a land tax – which is almost double the local authority’s current projected budget shortfall.

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The figures come from a new report from the pro-independence Common Weal think tank, Taxing Land in Scotland, which argues for reform of council taxation in order to give greater power to local authorities and create greater equality between who is expected to pay what taxes.

“If your back green or a private driveway add value to your house, you’re being taxed for them. If you own a 5000-hectare shooting estate, you’re not taxed on any of it. How is that fair exactly?” Robin McAlpine, Common Weal’s head of strategic development, said.

“Why are poor people being asked to contribute their fair share to public finances but super-rich landowners aren’t?

“Or, perhaps more accurately, when the hell are we going to do something about this injustice and the injustice of land ownership in Scotland?”

The paper, which has been authored by the think tank’s head of policy, Craig Dalzell (below), points to nations such as Australia, where land taxes are already in place and controlled at state level.

Dalzell said it represent “the first time a land tax proposal for Scotland has been costed based not just on its national impact – raising just short of £450m per year – but its impact on the finances of each of the local authorities who would control and collect this tax, with the expected revenue being enough in many cases to completely close currently projected budget shortfalls that threaten our public services”.

The Common Weal paper notes that while the devolution settlement prevents the Scottish Government from introducing a national land tax, it “explicitly allows them to enable local authorities to manage their own”.

The report states: “A property tax on buildings set at 0.63% would be ‘revenue neutral’ compared to council tax in 2019 – and would attract up to £650m extra in 2023 given house price rises in the intervening time.

“Extending this 0.63% rate to land would raise an additional amount of around £450m based on 2022 land prices.”

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It notes that, in Australia, a tax is levied on the value of all land owned by an individual within a state at midnight on December 31 of each year, with exemptions for things such as primary dwellings and farmland.

The paper further says that local authorities should have the freedom to decide on the exact tax rate they choose to impose, noting that Australia has a 4% surcharge on foreign land owners.

The paper was commissioned by Revive, a coalition set up to campaign for grouse moor reform.

Its campaign manager, Max Wiszniewski, wrote in a foreword: “Scotland has the most unequal distribution of land in the developed world with just 433 people owning half of all private land.

“Across most of the political spectrum there’s a stated consensus that this huge power imbalance must be addressed, but until now real solutions have been sadly lacking.

“Land taxes are amongst the most important untapped tools that we must utilise to change the face of Scotland for the better.”

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Dalzell added: "Scotland faces multiple crises in local governance, public services, local democracy, the environment and in wealth inequality.

“In short, too few people own too much of Scotland and the burden of providing for all of us lies on too many who can afford too little.

“The currently proposed Land Reform Bill does not mention the possibility of using tax as a tool to enact that reform and so we must consider this proposal as a necessary complement to that effort. Similarly, it goes hand in hand with also necessary and long overdue reforms to council tax.”

As it stands in Scotland, council tax is levied based on what the value of a home would have been on April 1, 1991 – even if it did not exist on that date. Based on their assumed 1991 value, properties are assigned one of eight bands, from A to H.

This system has been branded “increasingly absurd” by the Institute for Fiscal Studies think tank, which argued it is “probably reasonable to assume that half or more of the properties in Scotland are in the wrong band” due to uneven changes in home values across Scotland.

A Scottish Government spokesperson said: “We are committed to developing fairer, more inclusive and fiscally sustainable forms of local taxation and to re-energise our work to that end.

“We have convened a joint working group with Cosla [Convention of Scottish Local Authorities] on sources of local government funding, which is exploring a range of potential measures, including approaches to longer-term reform of local taxes, including council tax.

“It is important that we explore these proposals for meaningful changes in partnership with local government.”

The full Common Weal paper is available on the think tank's website.