Some households in England are paying council tax equivalent to a third of their annual rent or mortgage costs.
The inequity of the council tax system has been laid bare by new data from the property website Rightmove, which reveals vast differences in the amount 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 set to increase, as Chancellor Rishi Sunak announced at last week’s Budget that councils will be able to increase the levy by up to 3 per cent 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.
Households in Hartlepool and Middlesbrough pay council tax equivalent to around a third of their total annual rent or mortgage bills, compared to those in Westminster where the proportion is just 1 or 2 per cent.
Council tax is a domestic property tax charged to households which is collected by local authorities.
The money is used to fund council services such as social care, schools and roads.
How much you pay depends on the council tax band assigned to the property you live in.
There are eight valuation bands from A to H (D being the average) which are based on how much the property was worth in 1991.
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.
Pricey postcodes: The areas with the highest council tax are Nottingham, Dorset and Rutland
Paula Higgins, founder and chief executive of the HomeOwners Alliance said: ‘The council tax bands were last set 30 years ago in 1991 and is in dire need of reform.
‘Basing a tax on 1991 house prices means that properties in areas of highest house price growth are undervalued compared to regions where house prices have not seen the same spectacular level of 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
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, Rightmove’s director of property data said: ‘The data reveals a stark difference in the amount of council tax paid in many areas across England.
‘Further increases could mean home-hunters start to consider council tax costs much more as a factor when they’re choosing a location to move to, especially in those areas where the cost is more than, or close to, a third on top of the costs of their rent or mortgage.’
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 areas with the lowest council tax in England are Westminster, Wandsworth and the City of London.
Areas of England with lowest council tax as a proportion of their mortgage bills.
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 sets the rates – and why do they vary so much?
The quirks of Britain’s council tax system mean homeowners in some parts of the country are paying close to three times more than in some of the most expensive areas of London, with wealthy homeowners asked to contribute less than those on more modest budgets.
Although the Valuations Office Agency, a central government body, is responsible for working out which council tax band each home should fall into, it does not decide what those charges should be. That is up to individual councils.
While council tax is a major source of a council’s revenue, is is not their only source of income.
Government grants, transport services, parking tickets and fines, leisure centres, business rates and licensing also form part of a council’s income.
This means that some councils derive more income from other sources and can therefore choose to charge lower council tax.
Paula Higgins said: ‘Wealthier local authorities have other means to raise much- needed funds, such as business rates.’
This explains why authorities such as Westminster, which is home to lots of offices, shops and restaurants, might charge less.
The cost also depends on how heavily council services such as social care are used, and how expensive they are to run.
‘Ironically, residents in poorer areas have more of a need for local authority services, and these are partially funded by council tax,’ Higgins adds.
How can the council tax system be made fairer?
Updating the current council tax bands based on today’s property values – rather than those from 1991 – would be one way to solve the issue.
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. If those in properties worth much more than this could be charged even more, it would increase income from the tax – but it would still disproportionately benefit more wealthy areas.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: ‘A council tax revaluation is long overdue and, in my view, some extra bands should be added even if the present system stays 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 is based on property values from 1991 – and some experts argue that it is overdue for an update, as the typical house price has more than doubled
‘Maybe a percentage of stamp duty could be paid to the local authority, or people earning below a certain level should be exempt from payment of council tax and higher-rate taxpayers should be asked to pay more.’
Others have called for the system to be scrapped altogether and replaced with something else.
For example, the Labour-leaning think tank, the Institute for Public Policy Research has called for homeowners to pay an annual levy worth 0.5 per cent of the value of their home, instead of council tax.
Paula Higgins also believes the current council tax system is in need of urgent reform.
‘If the government is serious about levelling up, then the reform of council tax is a no-brainer.
‘A fairer system would be to have an annual property tax that is based on the value of the property.’
How can you cut your council tax?
The good news is that people in certain circumstances can get a discount on their council tax bill.
Many of these exemptions are not applied automatically, so residents will need to inform their local authority if they think they are eligible.
Firstly, the local authority will assume two or more adults are living in any given property. But those who live alone can get a 25 per cent discount on their bill as a single occupant.
There are also means-tested ways of reducing a council tax bill for those on benefits or low incomes.
Full-time students, student nurses, the severely mentally impaired and members of religious orders are also exempt from paying.
Homeowners and renters can also challenge their council tax band if they think it has been banded unfairly.
A sensible first step, according to the HomeOwners Alliance, is to find out what your neighbours pay, either by asking them or looking online.
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.
For homes in Scotland, you can search on the Scottish Assessors website.
If you’re convinced your property is in the wrong band then in England and Wales, you need to contact the VOA.
In Scotland, you’ll need to start with the SAA website, input your details, choose to ‘make a proposal’ and they will contact you.
But challenging your tax band also runs the risk of being moved into a higher band.
You will therefore need to try and work out what your property was worth in 1991 to establish whether your banding is correct.
Almost one third of Britons successfully challenged their council tax bill in 2018/2019, according to figures from the Valuation Office Agency.
Its data showed that of the 38,350 cases resolved in 2018/19, 11,910 saw their bills fall compared to just 30 bills that were upped as result of challenging.
‘It’s not so well-known that residents can challenge their council tax band, but this is only worthwhile if you think you are paying more than neighbouring properties,’ said Higgins.
‘There are also discounts on offer if you are on benefits, a low income or you are living alone in the property.’
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