Local Taxation in the United Kingdom - Coursework Example

 Hereditaments, Local Taxation Question 1 The chosen hereditament with a rateable value greater than £150,000 is located in New Malden, which is part of Greater London but is not part of the City of London Corporation. As such, the rates that are to apply are those that are in effect for Scotland and England in general, and the historical rates for each of the years from 2009 to 2014 are to be applied to the value of the hereditament. Here the rateable value is taken to be the annual rent of the property, which is pegged at £343,770. The property/hereditament is an office property located at 46-50 Coombe Road in New Malden, in Greater London. This hereditament fits the requirement for this question. The calculations also assume that the value of the hereditament is constant from 2009-2014 and is fixed at the amount above (RightMove 2015; Shaxson 2011). a) The rates payable for each of the years from 2009-2014 can be derived by simply multiplying the rateable value of the hereditament by the mandated multiplier for each of those years, as determined by the government. The multipliers for the different years are as follows (Eddisons 2015): Data Source for Table: Eddisons 2015 Year Multiplier 2009 48.5p 2010 41.4p 2011 43.3p 2012 45.8p 2013 47.1p 2014 48.2p Multiplying the above percentages to the rateable value, which is the market value as discussed above, we get the following rates payable for each of the years 2009 to 2014, as required (Eddisons 2015). Year Rates Payable 2009 166,728.45 2010 142,320.78 2011 148,852.41 2012 157,446.66 2013 161,915.67 2014 165,697.14 Table Data Source: Eddisons 2015, RightMove 2015 b) As discussed above, the rate multipliers are determined by the government and are determined to be those in application for the rest of England and Wales, because New Malden is part of Greater London but is not part of the City of London where different rates and rules apply. The rate multipliers are then applied to the rateable value of the hereditament, which as discussed above is taken to be the sale value of the property. The assumption here is that the sale value from the property management firm is the rateable value of the hereditament as well (Eddisons 2015, RightMove2015). c) The government at Kingston, where New Malden is situated for this exercise, publishes rate relief and rate discounts for different scenarios, but the rate payable for this hereditament suggests that it is not eligible for small business relief. Depending on use, however, the rates payable may be reduced and the occupier may be included in rate relief schedules, if the occupier is a charity for instance, or a non-profit organization. There is temporary relief too for three months for hereditaments that are not occupied (The Royal Borough of Kingston upon Thames 2015). Question 2 The structure of local taxation has changed over the past three decades, to the point where the composition of local tax revenues is now made up of 95 percent taxes that are controlled by the central government, and just five percent being generated at the local level, indicating a shift towards a centralized form of tax collection at the local level. This is a marked change from old practices, where local taxation consisted of more than just the current council tax and the service charges, and had components from domestic rates as well as business rates for residential and business hereditaments respectively. It was in 1990 when there was a dramatic shift in taxation at the local level, when the business rates were moved out of the hands of the local authorities and into the central government authority and coffers. It was also during this time that the domestic rates for residential hereditaments were replaced by the poll tax or the so-called community charge. This latter tax was short-lived, and was drastically reduced in subsequent years, with the loss in revenues from the reductions recouped in terms of higher value added taxation, even as the national government upped support levels to the local governments. The council tax came to replace the poll tax as early as 1993, and this latter tax is basically the domestic rates of old, with the value of the council tax being a function of the value of the domestic property. There were, are reliefs as well as exemptions to this new council tax. This council tax has become the sole means by which the local authorities have been able to raise funds to finance their operations, and the problem here is that being pegged to property prices, raising the council tax hit those who have the highest levels of property valuations relative to income, and these are older people on pensions. There is a natural set of constraints therefore built into the nature of the council tax and its tie to property valuations with regard to how much money the local governments can raise. Moreover, there have been instances when cappings of council tax raises have occurred even as such capping powers have been clipped in 2000. Since 2011 the central government has been expressly prevented from capping the power of local governments to raise council taxes and generate revenues to fund themselves, via the Localism Act. Even then, when central government says that any raises in the council tax are too much, referendums have to be conducted before such raises are allowed, under the law. The main tenets of local taxation therefore are the reliance of the local governments on the council tax, which are valued based on the valuation of domestic hereditaments, and the Localism Act of 2011 which guides the way local governments are able to raise additional revenues to fund operations via tweaking the council tax in the main. The poll tax is gone, and government relies on the council tax as well as service charges in order to raise just five percent of its total tax revenues, the remaining 95 percent being centrally managed and collected by the national government. This latter includes the business rates (Pope and Raintree 2014, pp. 62-63). Looking at the Localism Act of 2011, the aim of the new legislation is to elevate the powers of the local councils and give them more discretion in the way they should run their local governments. The inversion is in the way local councils are now able to do anything that does not break the law, whereas the old way of doing things was that the local councils are not able to do things that are not expressly allowed by law. In terms of taxation, they have greater control over the council tax. However, they still have no control over business rates directly. In that area, what they have power over is in the granting of incentives in terms of rate discounts and relief, in order to spur investments into their localities via the granting of such business rates incentives to potential businesses. The gist of the Localism Act therefore is to give flexibility in the way the local councils are able to raise funds from the council tax and to be able to indirectly affect the scheduling and payment of the business rates to benefit their own local economies from being able to entice potential businesses to move in (Department for Communities and Local Government 2011, pp. 3-6; Pope and Raintree 2014, pp. 62-63). Looking at the overall state of local taxation in the UK, it is clear that even with the Localism Act there are many constraints to the way the local councils are able to raise revenues for their own needs, and are in the end partly dependent on the national government for its finances. As discussed above, there are natural caps to the council tax, in that rates that are too high unusually burden parts of the population that may be unable to pay them, such as old people on pensions. Moreover, even with the new law the national government can compel local councils to hold referendums when it deems that council tax raises are too much. Some new powers over the business rates are mainly indirect, and in the end the money still goes to the central government while the benefits of rates relief to entice businesses may not be felt directly and immediately. Changes in the direction of letting local councils retain a portion of business rates revenues can help boost the power of the local governments and make them less dependent on the national government. The proposal is to change the law so that this takes effect, and that local councils get five percent to ten percent of all revenues from business rates (Department for Communities and Local Government 2011, pp. 3-6; Pope and Raintree 2014, pp. 62-63). 1 References Department for Communities and Local Government (2011). A plain English guide to the Localism Act. Communities and Local Government. [online]. Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/5959/1896534.pdf [accessed 4/27/2015]. Eddisons (2015). Uniform Business Rate. Eddisons.com. [online]. Available at: http://property.joneslanglasalle.co.uk/property-search/property-details.aspx?t=c&id=JLLATC50385 [accessed 4/27/2015]. Pope, T. and Raintree, B. (2014). A survey of the UK tax system. Institute for Fiscal Studies. [online]. Available at: http://www.ifs.org.uk/bns/bn09.pdf [accessed 4/27/2015]. RightMove (2015). Office to Rent: 46-50 Coombe Road, New Malden. RightMove.com. [online]. Available at: http://www.rightmove.co.uk/commercial-property-to-let/property-44755252.html?premiumA=true [accessed 4/27/2015]. Shaxson, N. (2011). The tax haven in the heart of Britain. New Statesman. [online]. Available at: http://www.newstatesman.com/economy/2011/02/london-corporation-city [accessed 4/27/2015]. The Royal Borough of Kingston upon Thames (2015). Business rate reductions. Kingston Council. [online]. Available at: http://www.kingston.gov.uk/info/200164/business_rates/85/business_rate_reductions [accessed 4/27/2015]. Read More