COUNCIL TAX
BANDS

 


 
 
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Council tax bands in England and Scotland are arranged such that each domestic property is assigned to one of eight bands (A to H).  Council tax bands in Wales range from A to I.  Although dwellings are assigned to these bands according to their market values, they are not based on current property values, but instead are based on domestic property prices at the point of valuation. In England and Scotland the relevant date is April 1st 1991, and in Wales it is April 1st 2003. Council tax rates for each band are set by  individual local authorities, and different authorities may set different rates for properties in the same band.  When council tax was first introduced in 1991 it was necessary to allocate every dwelling in the country to a valuation band and in order to assist in this task, estate agents and other professionals were employed. The charges for the different Council Tax bands have fixed ratios to each other, expressed as fractions of the charge for band D which is usually considered to be the   average band. For example the charge for council tax band A is two thirds of that for band D, and the band H charge is twice that for band D, and therefore the charge for H  is three times that for A. The rate for band C is 89% that for D.  The amounts payable by a person will depend on the council tax rate set by their local authorities for the band their home as been assigned to, as well as any council tax benefits they may receive.  The actual rates are set by local authorities, but the ratios between the rates are fixed and are the same for every local authority in the country. The ranges of each valuation band and their fractions (percentages)   of Band D    are shown below.   

Band         Valuation                 Fractions   (%)   of  Band D                                                                                   
                                                  
   A           £40,000 and Below              6/9    (67%)               

   B           £40,000 - £52,000               7/9    (78%)              

   C           £52,000 - £68,000               8/9    (89%)       

   D           £68,000 - £88,000               9/9    (100%)      

   E           £88,000 - £120,000             11/9   (122%)       

   F            £120,000 - £160,000          13/9   (144%)      

  G           £160,000 - £320,000            15/9   (167%)      

   H          £320,000 and Over              18/9   (200%)       

  

It is generally acknowledged that council tax bands are highly regressive. Band H starts at £320,000 which is eight times the top of band A (£40,000) yet the council tax rates for H are only three times those for A. The comparatively small differences in the amounts payable do not reflect the larges differences in the values of the properties. In addition there is no upper cut-off point for band H and it includes homes worth millions of pounds, but they still only pay three times the amount paid by band A dwellings some of which may be worth very little. There is also regressivity within each band since properties at the top of each bracket are paying the same as those at the bottom, even though they can be worth much more. For example homes at the top of band G are worth twice as much as those at the bottom but they all get charged the same amount. Properties worth £320,000 at the bottom of band H will pay the same as homes worth ten or twenty times as much.

Council tax bands for England and Scotland depend on assessments of property prices in 1991. This was when homes were first valued for the purpose of council tax which was introduced in 1993. They are therefore about twenty years out of date. Between 1991 and 2010 the average price of a house in the UK had risen by approximately two hundred percent, suggesting that a great many properties could now be in the wrong council tax bands in terms of modern house values, particularly in areas where prices have increased   most dramatically. A property valued at £40,000 in 1991 and at the top of band A could now be worth around £120,000 placing it in E or F today. A £78,000 house in the average band D could now be worth over £230,000 placing it in band G. if there was a revaluation of domestic premises to bring them in line with today’s market values it would be expected that the general pattern would be for homes to move into higher rather than lower valuation brackets, and those properties that did go up would pay the council tax rate for the band they have moved into. Assuming that the rates for each band remained the same as before revaluation, the effect of going up one band would be to increase the council tax of a property by between 12.50% and 22% and an upward movement of two bands would result in increases of between 29% and 44%, depending on which bracket the property started from and moved to. The more bands the property moved up, the greater would be the increase in charges. For example a three bracket movement of D to G would see a 67% increase and if it moved up four levels to H the increase would be 100%. This would of course be in addition to any increases in council tax rates there might be. It is the thought of sharp increases like this that create so much apprehension at the prospect of revaluation.

But if the revaluation was revenue neutral and the total amount of council tax generated was the same as before revaluation, then the increase in band D equivalent properties would lower the rates for each band and this could counterbalance to some degree the effects of going up to higher bands. Properties in higher bands have more band D equivalents than those in lower brackets. For example a property in band H has two band D equivalents which is three times as many as the .67 band D equivalents of a band A property. A general movement of homes into higher brackets world result in more band D equivalents which should result in lower rates if the total yield of tax was the same. As a rule however we would expect properties that moved upwards to pay more, especially if they moved by more than one band. Properties that remained in the same band should pay less than before due to the downward movement of council tax rates. The comparatively small percentage that moved down a band or more would pay less due to paying the charges for a lower band than before, and because the overall rates of council tax are lower.  One group that wouldn’t lose from a straightforward revaluation are those already in band H. it doesn’t matter how much their homes have increased in value by, they can’t be put into a higher band because their isn’t another bracket to put them in. Band H has no upper limit. They could on the other hand benefit from the downward movement in rates resulting from the increase in band D equivalents. Any revaluation therefore would need to introduce at least one additional higher band.

A revaluation of domestic properties took place in Wales in 2003 and a valuation list was brought out in 2005 based on the 2003 prices. This was therefore 12 years after the initial valuation of 1991. In the 2005 list more than a third of properties had been assigned to a higher council tax band than in 1991, with some homes going up three and sometimes four valuation bands, giving rise to higher council tax charges. Nearly 30% of properties went one band higher, just over 4% went up by two valuation bands and around half a percent moved three bands higher. Fewer than 10% of homes moved into lower brackets and almost 60% stayed where they were. An additional band (I) was created at the top and some properties were assigned to this new bracket. The number of homes that moved into higher bands was four times greater than the number going down. In those parts of Wales where house prices had gone up by large amounts there were more homes going into higher bands. In Cardiff over 60% of homes went up and in Wrexham over 50% did so. Council tax bills in Wales rose by an average of 9% after the revaluation. Transitional arrangements were brought in to ease the effects of the revaluation and these continued for three financial years starting April 1 2005.  The scheme applied to properties that had gone up two or more valuation brackets, with the exception of second homes. (Council Tax Wales). A revaluation of domestic properties in England was planned to take place in 2007, but it was announced in 2005 that that a decision on this would be put back until after the general election. The labour party has said that it promised in its manifesto that a revaluation would not be carried out if it was returned to government. The conservative lib-dem coalition government says that homes will not be revalued in the present parliament. There are no plans at this time to carry out a revaluation of domestic premises in England and Wales.

Council tax raises approximately twenty-five billion pounds each year, and provides about a quarter of local authority revenue.  The rest of their income comes from redistributed National Non Domestic Rates (NNDR) and Revenue Support Grant (RSG) provided by central government.  The basic amount of council tax is calculated by deducting NNDR and RSG from the budget requirement and dividing this figure by the tax base for band D properties. The resulting amount sets the council tax rates for the remainder of the valuation bands using national government formulae. In order to establish the tax base, the number of homes in an authority is converted into band D equivalents. The total number of properties in each band  is adjusted to take into account various factors such as exempt dwellings, homes that are expected to be demolished or newly constructed, and homes that have been put into a lower band due to having a disabled occupant. The figure resulting from these adjustments is the number of chargeable properties in each valuation band. Further adjustments take into account discounts for empty properties and homes occupied by one person or where the number of liable occupants is one or less due to other occupants being disregarded for council tax purposes. The result is the net number of domestic properties in each valuation band.  At the discretion of the billing authority, discounts may also be given for second homes and long term empty dwellings, which are homes vacant for longer than six months. The number of homes in each band is converted into band D equivalents using formulae laid down in the Local Authorities (Calculation of Council Tax Base) Regulations 1992. The number of band D equivalents is referred to as the relevant amount and is reduced to take into account anticipated council tax collection rates. The resulting amount is added to band D equivalents of ministry of defence home forces accommodation.

    

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