Residential Property Taxation in Northern Ireland - A Question of Reform?

The rating system has remained largely unchanged in Northern Ireland since its introduction in 1852, the date of the First General Valuation of Ireland when individual properties were given an individual assessment. While lettings are the most common way of holding property in the business sector, this is not the case for the housing sector. With over 70% of houses now owner occupied, private rented sector represents a very small proportion of housing stock. The domestic sector within Northern Ireland is valued on the basis of rental values prevalent in the late 1960s - for the 1976 Third General Revaluation (the last time domestic property was all revalued). The valuation list is therefore long out of date and there are significant anomalies in the way it distributes the rate burden due to lack of regular revaluations. This means that inequities have built up over the years with the loss of a clear relationship between rate bills and current circumstances. In recognition of the deficiencies within the current system, the Government announced that the existing rating system would be replaced by a tax based on the capital value of domestic properties. This research has been occasioned by the requirement of jurisdictions to examine the basis upon which domestic property is rated and taxed in light of concern regarding the cost, efficiency and fairness of the systems currently employed. The GB jurisdictions use a form of capital value banding under the auspices of the Council Tax, whilst Northern Ireland retains the Net Annual Rental Value (NAV) basis previously common across the UK and elsewhere in the former British Empires. In the USA, the common basis is discrete capital values, arrived at using complex computer assisted approaches. In order to assess the wider implications of a change to the domestic rating for Northern Ireland, this paper examines the use of capital value system in the taxation of residential property. It examines the options available and the underlying techniques involved in property taxation and utilising a dataset drawn from the Valuation and Lands Agency, suggests ways in which current practice can be modified to produce a more acceptable system. The paper provides an insight into the likely redistributive effects on the change in the rating basis which should inform policy makers and those charged with the ultimate decision on the future direction of domestic rating in Northern Ireland. A Geographic Information System (GIS) is also used to show the spatial distribution of district councils at ward levels and the effect of a shift from the current NAV based domestic rating system to one based on assessed capital values. The main recommendations indicate that a discrete value system performs best in terms of minimising the number of losers and providing a fairer and equitable local tax.