Valuation banding – an international property tax solution?
| Published date | 01 February 2002 |
| Pages | 68-83 |
| Date | 01 February 2002 |
| DOI | https://doi.org/10.1108/14635780210416273 |
| Author | Frances Plimmer,William McCluskey,Owen Connellan |
| Subject Matter | Property management & built environment |
JPIF
20,1
68
Journal of Property Investment &
Finance, Vol. 20 No. 1, 2002,
pp. 68-83. #MCB UP Limited,
1463-578X
DOI 10.1108/14635780210416273
PRACTICE BRIEFING
Valuation banding ± an
international property tax
solution?
Frances Plimmer
University of Glamorgan, UK
William McCluskey
Department of Applied Management and Computing,
Lincoln University, Christchurch, New Zealand, and
Owen Connellan
School of Surveying, Kingston University, Kingston-upon-Thames, UK
Keywords Property, Valuations, Tax law
Abstract Since 1993 the UK has used a ``banded'' property tax as opposed to discrete values
for the assessment of residential property. Explains both the advantages and disadvantages of the
system. In addition, summarises the main results of empirical research into the use of banded
property values which have been unaltered for ten years. In summary, aims to present findings on
the continued operation of this unique system, highlighting strengths and weaknesses and its
viability/applicability in other countries and jurisdictions in the light of empirical evidence based
on the analysis of open market transactions. Discusses both the assessment and administration
process and, with the analysis of sales data, demonstrates the importance of regular and frequent
revaluations of the tax base in order to ensure a reasonable level of both vertical and horizontal
equity. Speculates on the potential application of a banded system of property values in other
countries, in the light of the advantages of the banded system which could lend themselves to
jurisdictions where an ad valorem system of land taxation is inappropriate; where resources are
limited in terms of experienced valuers, or where the availability of technology to undertake
mass appraisal would provide added advantages. Concludes by drawing together
recommendations in relation to how the system in the UK can be improved and makes
recommendations for policy-makers in other jurisdictions.
Introduction
This paper reports the results of empirical research into the continuing currency
of the unique system of banded property values as the tax base on which the
council tax (the UK residential property tax) is levied. Part I of the paper briefly
describes the system of banding in the UK, its advantages and disadvantages,
and Part II discusses the main results of the analysis of empirical data into the
limitationsof banding a tax base which is ten years old. PartIII speculates on the
potential application of banding for other jurisdictions and the conclusions make
recommendations to improve thecurrent UK system to ensure improvedfairness
(horizontaland vertical equity) withinthe tax base.
The research register for this journal is available at
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The current issue and full text archive of this journal is available at
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The authors are indebted to the Valuation Office Agency for access to the data set, referred to
herein, and for the support of the agency in their research.
Practice briefing:
Valuation
banding
69
Part I. Banding in Britain
Banding of assessed values
Banding was introduced into the UK (Northern Ireland was excluded from
these reforms) following the failure of the highly unpopular community charge
(or poll tax). The social unrest and developing culture of non-payment with
which the community charge was greeted by the British public forced the then
Conservative Government to devise a ``fairer'' system of financing local
authority expenditure, as rapidly as possible. With the British 400-year-old
tradition of paying for local authorities' services with a local tax based on
annual value, some kind of property capital value-based tax was perceived as
socially acceptable. However, there was no time to implement a true ad valorem
property tax system.
In November 1990, investigations began to find a replacement for the
community charge (or poll tax). In April 1991, the details of the council tax were
announced to the UK Parliament, and in April 1993, the council tax was first
levied on domestic occupiers and owners in Britain.
The American Heritage Dictionary (1995) defines banding in general terms as
``tojoin so as to form a larger or more comprehensive group'' andthe New Oxford
Dictionary (1998) defines banding more specifically as ``the division of something
into a series of ranges or categories (used especially in financial contexts)'' and
gives as a fiscal example: ``the earnings-related bandingof contributions''.
There are two other examples that can be drawn, with particular reference to
property appraisal practice in the UK. We are, of course, immediately
concerned with the banding of capital values of domestic properties for council
tax purposes (which is described in more detail below) but the advisory RICS
(1995) Red Book for UK valuers does take on board another recommended
practice of banding in a quite different sphere as described in its Guidance Note
5.4.2:
It is frequently difficult, if not impossible, to put a precise life on a building or group of
buildings and Valuers may, therefore have to resort to ``banding''of lives. Information should
be available to identify buildings which are unlikely to remain beyond, say, 20 years, and at
the other extreme buildings with a life of more than, say, 50 years should be noted as having a
life of ``notless than 50 years''.It is apparent that the Valuer's task is made easier by the use of
broad bands and in the majority of cases it is likely these will meet the company's
requirements.
However, the main thrust of this paper concerns the use of banding as an
assessment and administration process in the realms of real property taxation.
In the experience of the authors there is no other recorded system of using
banded values for property taxation purposes anywhere else in the world and
thus the research provides an analysis of a unique system and considers its
suitability for application elsewhere.
Basis of assessment
The basis of valuation is capital value, subject to certain assumptions, but
basically it is the amount which the dwelling in question might reasonably
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