What is the Council Tax?

The council tax is the system of local taxation used in the United Kingdom nations of England, Scotland, and Wales.  The council tax has been in effect in these places since 1993, when it replaced the community charge system of local taxation.  The council tax is determined by residential property owned by the taxpayer.

Calculating the Council Tax

Council taxes are determined by the local rates for the ownership of property by the taxpaying individual.  They are collected by the local collecting authority and distributed to various precepting authorities.  These precepting authorities include strategic authorities, joint boards, public-owned utilities, lowest-tier authorities, and special purpose authorities.

1. Band Determination

Every property within the council tax is given a band level, which is determined by the estimated value of the property.  There are 8 bands (or 9 in Wales), which are listed from A to H.  Each local authority establishes the rates for a “D” property with two resident taxpaying adults.  This basis will then formulate the tax rates for all bands, according to the per-established formula set by the council tax laws.  Higher valued properties, identified as E, F, G, and H properties, will pay more from the base rate, while lower valued properties, identified as A, B, and C properties will pay less.

2. Tax rates by band classification

While properties classified as band D will pay 100% of the determined taxes, each tax away from the D band in either the higher or lower value bands will pay a per-determined percentage amount.  The lowest valued properties, in band A, will pay 67% of the standard rate.  Band B properties will pay 78% of the full rate, while Band C properties will pay 89% of the full rate.  Properties valued above band D properties will pay more, with the highest band, H properties, will pay 200% of the standard rate.

3. Exemptions

Certain properties are not subject to the council tax for various reasons.  The following are some of the most common exemptions:

– Dwellings which are unoccupied and require extensive work or have recently been finished.

– Dwellings owned by charities

– Dwellings who have residents currently detained in jail or prisons.

– Buildings occupied by ministers of any religion.

– Halls or residences inhabited by students.

– A home where all occupants are under 18.

What the Council Tax is used for

Council taxes only supply about 25% of the total local government budgets.  Instead, 75% is paid for by central government grants and business taxes.  These taxes help pay for police, fire, garbage collection, schools, parks and numerous local services for the benefit of the local residents.  Many local governments must provide these services by the laws and regulations of the central governments.

Many reforms have been suggested, especially as the taxes do not consider the income levels of the occupants of a residence.  Instead, the sole basis for taxation rates for council taxes are the perceived property value of the building.  Council taxes also apply to renters, who may be renting a building in which they could not afford to purchase.

Council Tax: Understanding the UK’s Local Taxation System

Council tax is a tax system implemented in the United Kingdom (UK) as part of the country’s local taxation system. It is a levy on domestic properties, charged by the local authorities, with revenue used to fund local services such as waste management, police, and fire services, among others. Here, we take an in-depth look at council tax, addressing its history, structure, administration, and reforms that have taken place throughout the years.

History of Council Tax in the UK

Council tax was introduced on 1st April 1993 as a response to the shortcomings of the previous poll tax, a taxation system that was based on a flat rate per person. The poll tax was deemed regressive, as it did not take into account the differences in income between different households. It met with significant resistance from taxpayers, culminating in widespread protests and riots in some parts of the UK.

In response to the poll tax crisis, the Conservative government of the time set up a committee to produce a report on local taxation, headed by Sir Michael Lyons. The committee recommended the introduction of a property-based tax, which would be more equitable and transparent than the poll tax. The proposal was welcomed by the opposition Labour party, and the council tax bill was passed into law under the Local Government Finance Act 1992.

Structure of Council Tax

Council tax is a property tax, which means that it is levied based on the value of properties owned by households. The tax is usually collected by the local authorities, either on a monthly or yearly basis, depending on the preferences of the taxpayer. The amount paid is calculated based on the valuation band assigned to the property, which is determined by the local council.

In England, Wales, and Scotland, properties are divided into eight valuation bands, ranging from A to H, based on their market value as of 1st April 1991. The authorities are required to review the valuations regularly, typically every five years, to ensure that they remain up to date. The council tax payable by each property varies depending on the valuation band which it falls in.

In Northern Ireland, the calculation of council tax is slightly different, with properties being divided into four valuation bands, based on their capital value as of 1st January 2005, with the rates collected by the Land and Property Services, an agency under the Department of Finance.

Council Tax Rates

The council tax rates paid by households vary by location and council. In addition, the rates for the different bands of property vary by council. Each local authority determines the specific rates for each band in its jurisdiction, based on the needs of the local community. Council tax rates also vary by region, with London having the highest average rate in the country.

According to UK government statistics, the average council tax rate for the year 2020/2021 is £1,817 per annum, with the highest average rate in England being in London, at £1,633.16 per annum, compared to the lowest in the North East of England, at £1,516.78.

Exemptions and Discounts

Not all households are subject to council tax. There are some exemptions, such as properties occupied by only one person, or where all the occupants are full-time students. Additionally, certain classes of dwellings, such as those used solely as places of worship or for the provision of healthcare, may be exempt from council tax.

Households that meet certain criteria may be eligible for council tax discounts. For instance, households that qualify for the single occupier discount, which is set at 25% of the council tax bill, may be eligible for a reduced rate. In some cases, households that have adapted their homes to cater to people with disabilities may be eligible for a discount of up to 50% of the council tax bill.

Administration of Council Tax

Council tax is administered by the local authorities, with each council having the responsibility of collecting the tax due on its properties. The authorities may use various methods to collect the tax, such as direct debit, standing order, or cash payment. Taxpayers are usually given the option to pay their council tax in instalments, typically over a 10-month period, with a two-month payment holiday in February and March.

The administration of council tax, including the assessment of property valuations, is overseen by the Valuation Office Agency (VOA), an executive agency of the UK government. The VOA also maintains the Council Tax Valuation List, which contains information on the valuation bands of all the properties in England, Wales, and Scotland.

Reforms to Council Tax

Since its introduction in 1993, council tax has undergone numerous reforms and changes. Some of the key reforms include:

Council Tax Benefit

In 1998, the Council Tax Benefit was introduced, designed to help low-income households meet their council tax obligations. The benefit was means-tested, with the amount of the benefit awarded based on the income and circumstances of the household. However, the benefit was abolished in 2013, with responsibility for the provision of support for low-income households being devolved to councils.

Council Tax Freeze

In 2008, the Scottish government introduced a council tax freeze, which was initially intended to last for three years. The freeze was renewed for a further two years, and became permanent in 2011. The policy was designed to ease the burden on homeowners, and to help to boost the Scottish economy.

Revaluation

In 2005, a revaluation of properties in England, Wales, and Scotland was carried out, which resulted in significant changes to the valuation bands assigned to properties. As a result, some taxpayers saw their council tax bills increase, while others saw them fall. There have been calls for further revaluations since then, to ensure that the valuation bands remain up to date.

Council Tax Reduction Scheme

In 2013, the UK government introduced the Council Tax Reduction Scheme, which replaced the Council Tax Benefit. The new scheme was designed to enable local authorities to develop their own support schemes for low-income households, with funding from central government.

Conclusion

Council tax is an important tax system in the UK, used to fund local services and improve communities. Despite its initial challenges, it has proven to be an effective taxation system, with regular reforms and adjustments to ensure that it remains responsive to the needs of society. With its transparent and equitable structure, it continues to be an essential component of the country’s local taxation system.