Taxation An aspect of fiscal policy
Council Tax is the system of local taxation used in England, Scotland and Wales to part fund the services provided by local government in each country. (In Northern Ireland, the form of local taxation is rates.) It was introduced in 1993 by the Local Government Finance Act 1992, as a successor to the unpopular Community Charge. The basis for the tax is residential property, with discounts for single people. As of 2011, the average annual levy on a property in England was £1,196.
- 1 Organisation
- 2 Calculation
- 3 Exemptions
- 4 How Council Tax is spent
- 5 Criticism
- 6 See also
- 7 Notes and references
- 8 External links
Council Tax is collected by the local authority (known as the collecting authority). However, it may consist of components (precepts) levied and redistributed to other agencies or authorities (each known as a precepting authority).
The collecting authorities are the councils of the districts of England, principal areas of Wales and council areas of Scotland, i.e. the lowest tier of local government aside from parishes and communities.
The precepting authorities are councils from other levels of local government such as a county or parish councils and other agencies. In metropolitan counties where there is no county council, the joint boards are precepting authorities. There may be precepting authorities for special purposes which cover an area as small as a few streets or as large as an entire country.
Strategic authorities Greater London Authority, English county councils, Greater Manchester Combined Authority Joint boards Passenger transport executives, police authorities, fire authorities Public-owned utilities Scottish Water Lowest-tier authorities Civil parishes in England Special purpose authorities National park authorities, Olympic Delivery Authority
These all set their precepts independently. Each of the levying authorities sets a precept (total amount) to be collected for households in their area. This is then divided by the number of nominal Band D properties in the authority's area (county, district, national park, etc.) to reach the Band D amount.
Each dwelling is allocated to one of eight bands coded by letters A to H (A to I in Wales) on the basis of its assumed capital value (as of 1 April 1991 in England and Scotland, 1 April 2003 in Wales). Newly constructed properties are also assigned a nominal 1991 (2003 for Wales) value. Each local authority sets a tax rate expressed as the annual levy on a Band D property inhabited by two liable adults. This decision automatically sets the amounts levied on all types of households and dwellings. The nominal Band D property total is calculated by adding together the number of properties in each band and multiplying by the band ratio. So 100 Band D properties will count as 100 nominal Band D properties, whereas 100 Band C properties will count as 89 nominal Band D properties. Each collecting authority then adds together the Band D amounts for their area (or subdivisions of their area in the case, for example, of civil parish council precepts) to reach a total Band D council tax bill. To calculate the council tax for a particular property a ratio is then applied. A Band D property will pay the full amount, whereas a Band H property will pay twice that. Please note there is no upper limit for band H. This means that in reality, someone who lives in a multimillion mansion, will only pay 3 times more than someone in a bedsit which falls into Band A.
The government had planned to revalue all properties in England in 2007 (the first revaluations since 1993) but, in September 2005, it was announced that the revaluation in England would be postponed until "after the next election". At the same time, the terms of reference of the Lyons Inquiry were extended and the report date pushed out to December 2006 (subsequently extended to 2007). In Wales, tax bills based on the property revaluations done using 2003 prices were issued in 2005. Because of the surge in house prices over the late 1990s and early 2000s, more than a third of properties in Wales found themselves in a band higher than under the 1991 valuation. Some properties were moved up three or even four bands with consequent large increases in the amount of council tax demanded. Some properties were moved into new Band I at the top of the price range. Only 8% of properties were moved down in bands.
However, a large shift of properties between bands will cause a shift in the allocation of the charge between bands, and the tax levied for each particular band will then drop, as the total amount collected will remain the same for each authority (see 'calculation of amount' above). Between the wholesale revaluations, a major change to a property (such as an extension, or some major blight causing loss of value) can trigger a revaluation to a new estimate of the value the property would have reached if sold in 1991. If such a change would result in an increase in value, then re-banding will only take effect when the property is sold or otherwise transferred.
In England, the council tax bands are as follows :
Band Value Ratio Ratio as % Average A up to £40,000 6/9 67% £845 B £40,001 to £52,000 7/9 78% £986 C £52,001 to £68,000 8/9 89% £1,127 D £68,001 to £88,000 9/9 100% £1,268 E £88,001 to £120,000 11/9 122% £1,550 F £120,001 to £160,000 13/9 144% £1,832 G £160,001 to £320,000 15/9 167% £2,113 H £320,001 and above 18/9 200% £2,536 Band Value Pre-2005 value Ratio Ratio as % A up to £44,000 up to £30,000 6/9 67% B £44,001 to £65,000 up to £39,000 7/9 78% C £65,001 to £91,000 up to £51,000 8/9 89% D £91,001 to £123,000 up to £66,000 9/9 100% E £123,001 to £162,000 up to £90,000 11/9 122% F £162,001 to £223,000 up to £120,000 13/9 144% G £223,001 to £324,000 up to £240,000 15/9 167% H £324,001 to £424,000 £240,001 and above 18/9 200% I £424,001 and above 21/9 233%
In Scotland, the current bands are
Band Value Ratio Ratio as % A up to £27,000 6/9 67% B £27,001 to £35,000 7/9 78% C £35,001 to £45,000 8/9 89% D £45,001 to £58,000 9/9 100% E £58,001 to £80,000 11/9 122% F £80,001 to £106,000 13/9 144% G £106,001 to £212,000 15/9 167% H £212,001 and above 18/9 200%
Council tax rates have been frozen by the Scottish Government for a fourth time and the rates for Band D for 2011/12 will range from a low of £1,024 in the Western Isles to a high of £1,230 in Aberdeen.
Rates for Band D.
* The average is for 2006, whereas the individual listings are for 2008.
* Some council areas have special rates for certain zones within the council.
Council Area Band D Rate % of 2006 Avg As at Wandsworth £676.16 53% 2008 Westminster £681.68 54% 2008 Kensington & Chelsea £1,031.15 81% 2008 Southwark £1,180.94 93% 2008 Lambeth £1,187.23 94% 2008 Hammersmith & Fulham £1,193.33 94% 2008 Islington £1,219.40 96% 2008 Average £1,268 100% 2006 Camden £1,300.52 103% 2008 Ealing £1,344.10 106% 2008 Croydon £1,357.64 107% 2008 Hounslow £1,394.53 110% 2008 Richmond £1,490.60 118% 2008
A full list of rates for England are available from Communities and Local Government. Council tax banding information is available from the Valuation Office Agency. A search facility combining these two datasets is available at mycounciltax.org.uk.
Individuals may apply to their local authority for council tax benefit, and subject to eligibility, will receive contributions to cover their tax liability. Payments are made direct to their council tax account, and no cash is paid to recipients. Local authorities receive funding from the Department for Work and Pensions to both administer the council tax benefit system, and to cover payments. There may be further modifiers in certain circumstances, for example a discount for unoccupied property, a 25% discount for single occupants, or a total dispensation for diplomatic residences and residences completely occupied by students.
Some dwellings are exempt from paying Council Tax. The list outlined below broadly explains which types of properties may be exempt and where they will be exempt only for a specified length of time. Unless specified, there is no period of time for how long the exemption can last.
The highlighted descriptions indicate when a property can be occupied by certain people as opposed to the unhighlighted ones where the property must have no people living there at all.
Class Description A Vacant dwellings where major repair works or structural alterations are required, underway or recently complete (up to twelve months). B Unoccupied (and furnished) dwellings owned by a charity (up to six months). C A vacant dwelling (i.e. empty and substantially unfurnished) (up to six months). D A dwelling left unoccupied by people who are detained in prison. Normal rates apply if they are imprisoned for non-payment of Council Tax. E An unoccupied dwelling which was previously the sole or main residence of a person who has moved into a hospital or care home. F Dwellings left unoccupied by deceased persons. G An unoccupied dwelling where the occupation is prohibited by law, however squatters can still be charged normal rates if they are found to be residing there. H Unoccupied dwellings of ministers of any religion. I An unoccupied dwelling which was previously the sole or main residence of a person who is the owner or tenant and has moved to receive personal care. J An unoccupied dwelling which was previously the sole or main residence of a person who is the owner or tenant and has moved to provide personal care to another person. K An unoccupied dwelling where the owner is a student who last lived in the dwelling as their main home. L An unoccupied dwelling that has been taken into possession by a mortgage lender. M A hall of residence provided predominantly for the accommodation of students. N A dwelling which is occupied only by students, the foreign spouses of students, or school and college leavers. O Armed forces' accommodation. P A dwelling where at least one person who would otherwise be liable has a relevant association with a visiting force. Q An unoccupied dwelling where the person who would otherwise be liable is unable to make use of the property because it is with a trustee in bankruptcy. R Empty caravan pitches or boat moorings not in use. S A dwelling where all occupants are aged under 18. T A dwelling which forms part of a single property which includes another dwelling and may not be let separately from that dwelling, without a breach of planning control. U A dwelling occupied only by a person, or persons, who is or are severely mentally impaired who would otherwise be liable to pay council tax or only by a one or more severely mentally impaired persons and one or more students, students' foreign spouses and school and college leavers. V A dwelling in which at least one person who would otherwise be liable is a diplomat. W A dwelling which forms part of a single property including at least one other dwelling and which is the sole or main residence of a dependant relative of a person who is resident in the other dwelling.
How Council Tax is spent
Although it is the only tax which is set by local government, the Council Tax contributes only a small proportion (25%, on average) of local government revenue. The majority comes from central government grants and from business rates which are collected centrally and redistributed to local authorities.
Local government provide services such as police, fire, recycling, refuse collection and removal, schools, leisure centres, park and ride schemes, parks and open spaces, street cleaning, subsidising of public transport, tourism, museums, social housing grants, housing and council tax benefits, environmental health and food safety in pubs, restaurants and shops, planning services, support for voluntary groups, meals on wheels, facilities for young people, adapting homes for disabled people, play centres for children, cctv installation, sports facilities, issuing taxi licences, flood defences, and many others.
A significant proportion of local government services are stipulated by central government in the form of statutory provision. Local councils are obliged by law to provide these services. The remainder of services are discretionary and are determined by the local council.
Council Tax is criticised for perceived unfairness in not taking into account the ability to pay (see regressive taxation). These critics point out that while the capital value of the property in which a person lives might give some indication of the relative wealth of the individual, it does not necessarily relate to current income. Council-tax advocates respond that those on low incomes can apply for council tax benefits which can significantly (or totally) reduce the amount the applicant pays. This argument presumes, of course, that the system of council tax benefit is itself a satisfactory scheme. In particular, not everyone who is eligible to benefit will make a claim.
Critics also claim that Council Tax has a disproportionate impact on renters, or those occupying part-owned social housing. They are paying tax according to the value of a property that they may not have been able to afford to buy or even rent at market rate.
Equally, the tax isn't actually particularly proportionate even to property values. A band H property will pay at most three times as a band A, even though the value of the property may be ten or more times higher.
Whilst the tax may have regressive characteristics, supporters point out that there is a significant means tested benefit regime in place which offers rebates to those on low incomes. This has the effect of making the tax less regressive. Furthermore, in comparison to its predecessor - the Community Charge - council tax is straightforward to collect with in year collection rates averaging 97% in England.
The Liberal Democrats have proposed a system of local income tax to replace Council Tax, but when such a scheme, the Scottish Service Tax, was proposed for Scotland, they opposed it. Critics of that suggestion have claimed that administering such a system independently of the national tax system would impose significant costs for government and business would significant erode the value gained from it as a source of local government income. Conversely, administering a local income tax as part of the national tax system would leave local taxation entirely under the control of central government.
Another alternative scheme would be to allocate all funding directly from central government finances - already around 75% of local authority income is from central budgets. The biggest argument against this is that it removes fiscal independence from local government, making them mere service providers. However, since local government in the UK has no constitutional guarantee, and is shaped entirely by the whim of central government, some critics argue that local authorities can never be independent of central government.
2007 media claims: "Millions may have overpaid"
An edition of the current affairs programme Tonight with Trevor McDonald on 26 January 2007 investigated whether millions of homes had been placed in the wrong band in the original 1991 valuation. It was shown that the banding valuations were often done by 'second gear valuations', in other words valuations were often done by driving past homes and allocating bands via a cursory external valuation. The programme followed case studies of a system devised by the presenter Martin Lewis, published on his website in October 2006, who had received thousands back in back payments after appealing their band allocations. This Council Tax Cashback system was said to have the potential to reach millions and received widespread publicity, likely to encourage people to challenge the system. There had been no information published on how many have been successful in obtaining a reduced banding until the 22 November 2008 when the Daily Telegraph, in a news article about the campaign by Martin Lewis, stated that in the past year 97,563 properties in England and Wales have been rebanded, with 69,695 of those down-graded.
Notes and references
- ^ Communities and Local Government - Council Tax: The Facts
- ^ Council Tax in Scotland Scottish Government publications
- ^ Council Tax a guide Valuation Office Agency
- ^ Council tax levels set by local authorities in England - 2011-12 Communities and local government - figures released 23rd March 2011
- ^ Council tax revaluing is shelved, news.bbc.co.uk
- ^ Lyons Inquiry Press Notice: 6 December 2006
- ^ a b c Nominal value as at 1991
- ^ a b c The ratio governs the relationship between the bands. For example, a Band B property will pay 78% of the charge set for a Band D property in the same area.
- ^ Based on average Band D rate as of 2006
- ^ Nominal value as at 2003
- ^ Plus "Commons" area surcharge
- ^ Plus "Commons areas" surcharge
- ^ http://www.local.odpm.gov.uk/finance/ctax/cp078.htm
- ^ http://www.itv.com/news/tonight_004ae25293cb8a3cc3a771af961dbcaa.html
- ^ MoneySavingExpert.com. "Council Tax Reclaiming". http://www.moneysavingexpert.com/council.
- ^ "Millions could be eligible for council tax refund". The Guardian (London). 25 January 2007. http://money.guardian.co.uk/tax/counciltax/story/0,,1998580,00.html. Retrieved 30 April 2010.
- ^ "Owed Tax Handout". The Sun (London). 10 May 2007. http://www.thesun.co.uk/article/0,,2005300000-2007040164,00.html.
- ^ Leach, Ben (23 November 2008). "Thousands of households in the wrong council tax banding, it is claimed Nearly 100,000 households have been put in the wrong council tax banding, it has been claimed.". The Daily Telegraph (London). http://www.telegraph.co.uk/finance/financetopics/recession/3507276/Thousands-of-households-in-the-wrong-council-tax-banding-it-is-claimed.html. Retrieved 30 April 2010.
- Check your Council Tax band, from Directgov (England and Wales only)
- Check your Council Tax band, from the Scottish Assessors Association (Scotland only)
- Pay your Council Tax online, from Directgov
- Council Tax payments, discounts and appeals, from Directgov
- IsItFair - the UK Council Tax Protest Group
- Axe The Tax - Liberal Democrat anti-Council Tax website
- Ministerial correspondence relating to council tax in the financial year 1991-2 HM Treasury disclosure under the Freedom of Information Act
- Check if you're in the right council tax band
- full listing of rates for each council and banding information
- Office of Deputy Prime Minister Released Council Tax Figures
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