How is council tax calculated - and how can you request a reduction?

Make sure you understand how council tax is calculated to better manage your money

How council tax is calculated

Knowing how council tax is calculated is key to understanding whether you could be overpaying.

Alongside rising energy bills and National Insurance, council tax also went up for most people in April. However, for those in council tax bands (opens in new tab) A to D, there is a small measure of relief in the form of a £150 council tax rebate (opens in new tab), which should be paid between now and the end of September.

Shaun Moore (opens in new tab), financial planning and tax expert at Quilter, says: “We are entering a fiscally difficult time and it has never been more important to ensure that you have a good knowledge of all your finances and outgoings. Simply knowing what your council tax band is could ultimately end up saving you hundreds of pounds a year”.

We explain how council tax is calculated and how to find out how much you need to pay.

How is council tax calculated?

Knowing your council tax band is key to understanding how council tax is calculated. The amount of council tax you pay each year is based two key elements. The first is your property’s council tax band. The second is the funding needed by your local council. If your home sits in one of the lower council tax bands, which start from A, you’ll pay a lower rate of council tax. Those in higher band properties, which go up to H in England and Scotland, and I in Wales.

When it comes to the actual amount you pay, band D is used as the benchmark for the full rate of council tax with an average annual charge of £1,898 a year. (opens in new tab)

  • For households on either side of Band D, bills are reduced on a sliding scale.
  • Those in band A will pay the lowest amount of council tax.
  • The biggest council tax bills will be paid by those in band H, or I (if you live in Wales)

You can find out how much council tax your local authority charges for each council tax band by plugging your details into this postcode checker. (opens in new tab)

Quilter's Shaun Moore says: “Around 20 million households in council tax bands A to D, including 95% of rented properties are set to benefit and you should think about setting up a council tax direct debit to ensure payment is made automatically from April.”

Will my council tax go up?

Council tax bills went up for most households from April 2022. However, while local councils have the power to raise council tax each year,  maximum limits are imposed by the Government. Every year the Government publishes ‘referendum thresholds’ for council tax increases. If local authorities want to raise council tax above these levels; they’re legally obliged to hold a referendum.

In last Autumn’s Budget, Chancellor Rishi Sunak announced that councils could raise council tax rates by up to 3% without holding a referendum. On top of this, they can also add another 2% for social care.

Headline on Evening Standard newspaper hoarding Massive Council Tax Rise London England UK

Alamy Stock Photo

How can I reduce how much council tax I have to pay?

Depending on your financial situation and living circumstances, you may be eligible for a discount or exemption. This could be between 25 and 100%, so it's definitely worth understanding what qualifies for council tax reduction (opens in new tab) and whether your circumstances mean you are eligible. 

Council tax bills are based on two adults living in the same property, and if you live alone, you may be eligible for a 25% discount. If you’re on benefits, you may be eligible for a council tax reduction on Universal Credit (opens in new tab). In some cases this can mean your council tax bill being reduced by up to 100%. And if you’re disabled, depending on your living situation, you may be eligible to pay a lower rate of council tax. This can mean, for example, being moved from paying band D to band C.

Contact your local council (opens in new tab) to ask about council tax reduction schemes, discounts and exemptions.

If you think you’re in the wrong council tax band, you can always challenge your council tax banding. This can mean reduced payments going forward along with a backdated refund on any overpayment. However, do be cautious if you plan on challenging it. It could be found that your property sits in a more expensive council tax band. If this is the case, you will end up paying more. So make sure you do your research beforehand.

If you have moved from one local authority's area to another and not closed your old council tax account, you may find that you are due a council tax refund (opens in new tab). Similarly, you could also be eligible for a refund if you successfully challenged your council tax band and and now in a lower band. 

What should I do if I can’t pay my council tax?

If you can’t pay your council tax (opens in new tab) you should speak to your local council. In the first instance, if you just need some financial breathing space, one option may be to spread payments over twelve months, rather than the standard ten months. This is something that can be arranged with your local council at no extra cost.

Annabelle Williams (opens in new tab), personal finance specialist with Nutmeg, says: “Most councils have discretionary funds available to help people who are really struggling to pay. This can mean being given a heavy discount so that you only pay a fraction of council tax that you would normally have to pay.”

As councils have their own individual schemes, exactly how much financial help you get, will depend on where you live along with your living situation, for example if you have children living with you.

Doing nothing is the worst thing to do, as your council will send you reminders to pay. It can then take legal action against you. This can include arranging for any unpaid council tax to be taken directly from your salary or any benefits you receive.

What does council tax pay for?

The council tax you pay goes straight to your local council to help fund local services.  In most cases, it goes towards everything from recycling and bin collections to Police and Fire services and road maintenance.  It also pays for street cleaning and lighting, looking after public spaces, sports centres and local libraries along with support for the elderly. Each council can decide how your council tax is spent.

When it comes to how every £1 of our council tax (opens in new tab) is spent, the bulk of our council tax goes towards social care, according to the most recent Local Government Association figures, at 57p per £1.

Around 8p in very £1 goes on public transport and also on education. 7p is spent on waste management services like recycling and bin collections. Just 5p towards local services like museums, parks and libraries.

Council tax payments make up nearly 20% of local authority income according to the Ministry of Housing, Communities & Local Government (opens in new tab). Other sources include government grants, business rates, and council rents.

Related video: How to save money on fuel 

Sue Hayward is a personal finance and consumer journalist, broadcaster and author who regularly chats on TV and Radio on ways to get more power for your pound. Sue’s written for a wide range of publications including the Guardian, i Paper, Good Housekeeping, Lovemoney and My Weekly. Cats, cheese and travel are Sue’s passions away from her desk!