Taxation in the United Kingdom/Council tax

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Introduction[edit]

The Council Tax is the main form of local taxation in England, Scotland and Wales. It is paid by residents to the local authority. It was introduced in 1993 (by way of the Local Government Finance Act 1992) as a successor to the Community Charge or Poll Tax, introduced in 1989 in Scotland and in 1990 in England and Wales.

The base for the tax is residential property. Each dwelling is allocated to one of eight bands coded by letters A through H (I in Wales) on the basis of its assumed capital value (as of 1 April 1991). Newly constructed properties are also assigned a nominal 1991 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. Single adults living alone are entitled to a 25% discount.

As of 2006, the average annual levy on a property is £1,056 (the average Band D tax is £1,268)[1]

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.

Northern Ireland still levies rates, the system of local taxation used in the rest of the United Kingdom before the implementation of the Poll Tax. The Government is considering using Northern Ireland for a pilot project to replace council tax with a property "wealth tax" based on an annual charge of 0.78% of the value of the property. Such property valuations would be updated every five years.

Calculation of amount[edit]

Council Tax is divided into a number of components. Depending upon where the dweller lives, there can be a separate charge made by the Greater London Authority, County Councils, Police Authorities, Fire Authorities, Transport Authorities, National Park Authority, Olympic Delivery Authority, District Councils, Scottish Water and Civil Parishes. These all set their precepts independently.

Each of the levying authorities sets a precept (total amount) to be collected for 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.

(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 only count as 89 nominal Band D properties.)

Each collecting authority (district/borough council or unitary 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.

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.

Revaluation[edit]

The government had planned to revalue all properties in England in 2005 (the first revaluations since 1991) but, in September 2005, it was announced that the revaluation in England would be postponed until 2009 or 2010.[2] At the same time, the Terms of Reference of the Lyons Inquiry were extended and the report date pushed out to December 2006. 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.

Bands[edit]

In England, the council tax bands are as follows :

Band Value[3] Ratio[4] Ratio as %
A up to £40,000 6/9 67%
B £40,001 to £52,000 7/9 78%
C £52,001 to £68,000 8/9 89%
D £68,001 to £88,000 9/9 100%
E £88,001 to £120,000 11/9 122%
F £120,001 to £160,000 13/9 144%
G £160,001 to £320,000 15/9 167%
H £320,001 and above 18/9 200%

In Wales, the bands were re-set on April 1, 2005 by the National Assembly for Wales, based on 2003 valuations. In addition to revising the band boundaries upwards, an extra band was added.

Band Value[5] Pre-2005 value[3] Ratio[4] 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 £91,001 up to £51,000 8/9 89%
D £91,001 to £123,001 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[3] Ratio[4] Ratio as %
A up to £27,000 6/9 67%
B £27,001 to £35,000 7/9 79%
C £35,001 to £45,001 8/9 89%
D £45,001 to £58,001 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%

References[edit]

  1. [1]
  2. [2]
  3. a b c Nominal value as at 1991
  4. 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.
  5. Nominal value as at 2003