How Does Council Tax Works In the UK

Council Tax UK

Unlike income tax which is a significant source of revenue for the UK government, council tax is for local authorities like County Councils, District Councils, Metropolitan Borough Councils, etc. The annual fee is collected to have funds so that they can provide essential services to the residents. Some of these services are waste collection, libraries, and public amenities. As a resident of the UK, you must pay this tax, but if you are 18 or above. Having an understanding of how the council tax works is vital as it has a direct impact on their budgeting and financial planning.

Let’s have a look at the same. 

How is your Council Tax calculated?

Well, it is calculated based on the value of the property in which you are living. Even if you are in a new home built recently in England or Scotland, the Council tax band is calculated based on the value of your home if it was sold on 1 April 1991. The year 1991 was considered a reference point because of the availability of data for the property market and valuations from this particular year. However, for a property in Wales, it is calculated based on its value if it was sold on 1 April 2003. These dates are known as antecedent valuation dates (AVD).

The Council tax is calculated by the Valuation Office Agency (VOA). It is a part of the HMRC. Now, coming back to the calculation part, your residential property may fall into one of the 8 council tax bands ranging from A to H. For example, the average council tax set by local authorities in England for bands B and D for 2023-24 will be £2,065. This is a 5.1 % rise in the council tax rate from 2022-23 rate of £1,966. Here are the different council tax bands in England.

Council Tax bandThe market value of the property on 1 April 1991
AUp to £40,000
B£40,001 to £52,000
C£52,001 to £68,000
D£68,001 to £88,000
E£88,001 to £120,000
F£120,001 to £160,000
G£160,001 to £320,000
H£320,001 and over

The council tax varies from one area to another as different areas have different property values, and those having higher property values, such as London may have a high rate of council tax compared to an area with lower property values. The funding needs of the local authorities also play a role in deciding the council tax rate. 

Factors that may have an impact on your Council Tax band

While it is true that the council tax band depends on the estimated value of your property in 1991, some factors may impact your tax band. Here are a few of these factors. 

  • If you tear down a part of your residential property causing a decrease in its size 
  • If you cause a significant change in its layout, like creating two or more self-contained units
  • If you convert your single property into multiple self-contained flats
  • If you have started to operate a business from your home that requires frequent client visits 
  • If there are notable changes in your local area like the construction of a new road

To avoid any confusion, it is best to enquire the Valuation Office Agency to know whether any changes in your property will impact your council tax band or not. However, you can challenge the VOA if you think your property is in the wrong tax band. 

Discounts and exemptions from council tax 

Yes, you can get some discounts or become eligible for exemptions from the council tax if you are a full-time student or has a disability. There is also a Single Occupancy Discount that can help you to enjoy a 25% reduction in council tax. 

Similarly, You can also get an Empty Property Discount if your property is unfinished, but this discount will be only for a limited time. 

If still you feel unsure about the council tax works, it is best to hire an accounting professional from a reputed accounting firm. These professionals are often well versed in how the council tax is estimated and whether you are eligible for any discount or not. They can also make sure that you are duly meeting your tax obligations.