Some households in England pay council tax equivalent to one third of their annual mortgage or rent costs.
New data from Rightmove has revealed the inequity in the council tax system. It reveals huge differences in the amounts paid across the country.
In the most expensive area, Nottingham, residents pay more than £2,226 per year for the typical Band D home – more than 2.5 times the £829 paid by residents in affluent Westminster.
And the cost is only going up, as Rishi Unak, Chancellor Rishi Sunak, announced at last week’s Budget that councils can increase the levy by as much as 3 percent from next year.
In Middlesbrough, council tax is equivalent to 34% of an annual mortgage payment, compared to Kensington & Chelsea, where council tax is equal to just 2% of an annual mortgage payment
On average, council tax costs for band D properties are equivalent to 16 per cent of a household’s annual rent across England, and 15 per cent of annual mortgage payments – but there is huge disparity between areas.
Hartlepool and Middlesbrough residents pay council tax equivalents to about a third of their annual rent or mortgage bills. This is in contrast to Westminster, where it is just 1 to 2 percent.
Council tax is a tax on domestic property that is levied on households and collected by local authorities.
The money is used for council services, such as schools and social care.
The council tax band that is assigned to your property will determine how much you pay.
There are eight valuation bands, A to H (D being an average), which are based upon the property’s 1991 value.
In Nottingham where average house prices are £241,000, residents pay the highest council tax, at £2,226 per year for the average Band D property.
This is nearly three times the £829 paid by residents in Westminster, where the average property price is a whopping £1,571,000.
Postcodes that are expensive: Rutland, Dorset, and Nottingham have the highest rates of council tax.
Paula Higgins, founder of the HomeOwners Alliance, stated: “The council tax bands were first set in 1991 30 years ago and is in dire need for reform.”
“Basing a tax to 1991 house prices means properties in areas with high house price growth are undervalued when compared to regions that have seen the same level of dramatic growth.”
Further increases could mean home-hunters start to consider council tax costs when they’re choosing a location to move to
Tim Bannister, Rightmove
At present, 104 out of 309 council tax districts charge families with Band D bills more than £2,000.
According to analysis by the Daily Mail, a 3 per cent rise could increase the number of districts charging in excess of £2,000 by 50 to 154 out of 309.
Tim Bannister is Rightmove’s director for property data. He stated that the data revealed a stark disparity in the amount paid in council tax in many areas of England.
“Further increases could lead to home-hunters starting to consider council taxes more as a consideration when choosing a place to live, especially in areas where the cost of their rent or mortgage is more than a third.
At present renters in Hartlepool, living in a property with a council tax band of D, can expect to pay £2,099 a year in council tax on top of £6,034 for their annual rent.
The City of London, Wandsworth and Westminster are the areas with the lowest council tax rates in England.
England’s areas with the lowest council tax as an amount of their mortgage payments
However, renters in the London boroughs of Westminster and Wandsworth, where the average annual rents are £47,434 and £30,640 respectively, are only required to pay £829 or £845 in council tax for a band D property.
In Middlesbrough, council tax is equivalent to 34 per cent of annual mortgage payments, compared to Kensington & Chelsea, where council tax is equal to just 2 per cent of annual mortgage payments.
Who decides the rates and why do they vary so greatly?
Because of the quirks in Britain’s council taxes system, homeowners in some areas pay nearly three times as much as those in the most expensive parts of London. Additionally, wealthy homeowners are required to contribute less to the tax than those with lower budgets.
Although the Valuations Office Agency (a central government body) is responsible for determining the appropriate council tax band for each home, it does not decide how much. It is up to the individual councils.
Although council tax is a significant source of revenue for a council, it is not their only source.
A council’s income includes grants from the government, transport services, parking tickets, fines, leisure centres and business rates, as well as licensing.
This means that some councils may have more income from other sources than others and can therefore charge a lower council tax.
Paula Higgins stated: “Wealthier local governments have other means of raising much-needed funds such as business rates.”
This is why authorities like Westminster, which has many offices, shops, and restaurants, might charge a lower price.
The cost of council services like social care will also depend on how much they are used and how costly they are to operate.
Higgins says that despite being in poorer areas, residents have a greater need for local authorities services. These services are partially funded by council taxes.
How can the council tax system make it fairer?
One way to resolve the problem is to update the current council tax bands based upon today’s property values, rather than those from 1991.
Another solution is to add higher bands for those in the most expensive properties, as currently the highest band relates to homes worth £320,000 in 1991.
This equates to a home worth around £2million today. It would be possible to charge more for properties that are worth more than this, but it would still benefit the most wealthy.
Jeremy Leaf is a north London estate agent and a former RICS residential chair. He stated: ‘A council taxes revaluation has been long overdue. I believe that some additional bands should also be added, even if current system remains in place.
‘This is so that someone living in a house worth £20million is not paying the same Council Tax as someone in a £2million house just because they are both in Band H.
The council tax system was established on the basis of property values starting in 1991. Some experts believe that it is time for an update since the average house has more than doubled in value.
“Maybe a portion of stamp duty could go to the local authority. Or people earning below a certain income should be exempted of paying council tax. Higher-rate taxpayers should pay more.
Others have called for the system’s elimination and replacement with something else.
The Institute for Public Policy Research, a Labour-leaning thinktank, has proposed that homeowners pay a 0.5 percent annual levy on the home’s value instead of paying council tax.
Paula Higgins agrees that the current council tax system must be changed.
‘If the government is serious in levelling up, then the Reform of Council Tax is a No-Brainer.
“A fair system would be to have an anual property tax that is based upon the value of the property.
How can you reduce your council tax?
The good news? People in certain circumstances may be eligible for a discount on their council taxes bill.
Many of these exemptions cannot be applied automatically. Residents will need to notify their local authority if they believe they are eligible.
First, the local authority assumes that at least two adults live in a property. Single occupants can receive a 25% discount on their bill.
There are also means-tested methods to reduce the council tax bill for people on benefits or with low incomes.
Students who are full-time, student nurses, the severely disabled, and religious members are exempted from paying.
If they feel the council tax band has been unfairly applied, both renters and homeowners can challenge it.
According to the HomeOwners Alliance a good first step is to ask your neighbors or look online to see what their neighbours pay.
For homes in England and Wales you can search by postcode on the Valuation Office Agency website and it will list the council tax bands for properties.
Search on the Scottish Assessors website for homes in Scotland.
Contact the VOA if your property is believed to be in the wrong band in England and Wales.
You will need to register with the SAA website in Scotland. Once you have entered your details, click on’make proposal’ to be contacted.
You could also be moved to a higher tax band if you challenge your tax band.
To determine if your banding is correct, you will need to calculate the value of your property in 1991.
According to the Valuation Office Agency figures, nearly a third of Britons successfully challenged council tax bills in 2018/2019.
Its data showed that 11,910 of the 38.350 cases that were resolved in 2018/19 saw their bills drop, compared to 30 bills that were increased due to challenging.
Higgins stated that it is not common for residents to challenge their council tax band. However, this is only possible if they feel they are paying more than neighbors.
“There are discounts available if you have a low income, are on benefits or live alone in the property.