Local government finance circular 6/2024: council tax on second and long-term unoccupied homes guidance

9. Treatment of additional income

9.1 Effect on central Government grant

The council tax base is used in calculating local authorities’ grant from the Scottish Government. As second homes and long-term empty properties are counted as half a dwelling in the calculation of the council tax base, regardless of what a local authority does with setting a discount or increase the level of central government grant is not affected as a result of local authorities reducing the level of discount or charging an increase.

9.2 Accounting for income received through reduced discounts

Local authorities are required to ensure that a sum equal to the additional income, collected as a result of reducing discount between 10% and 50% for second homes and long-term empty properties is used in accordance with the broad outline as set out under section 4 above.  The funds can either be transferred to an RSL, another organisation, individual or used by the local authority itself. In calculating the amount to be spent, authorities are required to consider all income received as a result of reducing the level of discount, irrespective of the year to which the income relates.

Where resources are being allocated to RSLs, they will need a firm commitment regarding funding levels due to the fact that once project costs are legally committed, they cannot be withdrawn. It may be difficult for local authorities to be certain of the amounts to be allocated at the beginning of any financial year. This being the case, local authorities can wait until the following financial year, when actual funding levels are known, before allocating this funding to RSLs, in partnership with their housing colleagues and the Scottish Government More Homes Division.

The deadline for finalising the levels of funding each local authority will provide from previous years is no later than 30 June after the end of the preceding financial year.

Nothing in the above precludes local authorities from allocating funding to relevant projects at any point during the course of the year within which it is being collected.

9.3 Relationship with sums passed to Scottish Water

The additional income from reducing the council tax discount or applying an increased level of council tax payable remains council tax income, and as such should be factored into the ABCD formula in full. For the purposes of calculating the amount of money to be passed to Scottish Water, in the “ABCD” formula:

• A will be the total amount paid to a local authority as council tax or water services charges.  This includes the amount paid as a consequence of properties that are subject to a reduced discount or council tax increase, and
• D will be the total amount of council tax payable in that particular year. This includes any amounts that are due as a consequence of the reduced discount or council tax increase.