Big imbalances in Britain’s council tax system mean that owners can find a smaller property costs more than a larger home, theirs costs more than their neighbours and homes for the wealthy can be cheaper than those for families. We investigate.
When the last of their four children moved out of the family home in 2014, Jeremy and Amanda Lucas knew it was time to downsize.
They found a quaint two-bedroom cottage perched on a hill overlooking Hastings, the seaside town where their children had grown up.
No longer running a large five-bed house, they expected cheaper bills. But when Jerermy, 60, and Amanda, 54, received their first council tax letter in 2014, the bill was £1,459 – more than they had paid for their family home.
This property in Kensington London is valued at £136.4 million with council tax payments at £1,376 a year
… meanwhile, this modest property in Wiltshire is valued at £335,000 with council tax payments of £1,720 year – £344 more than the swanky London abode
Worse still, Jeremy spoke to his neighbours and discovered that someone a few doors down was paying just £1,277 a year – £182 less – for an almost identical property.
The English teacher wrote to his council to challenge the rate, providing evidence from neighbours that it was out of step with homes nearby. Officials replied saying he was paying the correct amount according to the tax category that his house fell into – band C.
So Jeremy asked for his band to be reassessed by the Valuation Office Agency (VOA), the government body that works out what properties are worth and into which category they fall.
When he was turned down again, Jeremy took his case to an independent tribunal, a panel of volunteers who operate like magistrates, which finally agreed to move his property down by a tax band, saving him £182 a year.
A Money Mail investigation today reveals how baffling – and inexplicable – quirks in Britain’s council tax system have left homeowners like Jeremy facing a bills lottery.
In some cases, billionaire oligarchs in West London pay less council tax than owners of modest family homes in Wiltshire. Others are hit with higher bills because someone extended their property decades before they moved in.
Houses just feet away from one another are being charged different rates depending on the view from their living room window. Yet Jeremy and Amanda Lucas are among just one in five homeowners to launch successful appeals against these inconsistencies every year.
I was landed with two bills for my two-bed bungalow
Sarah Hudson received two letters about council tax shortly after moving into a two-bedroom bungalow in Poole in 2014.
They were both sent on the same day and signed by the same person. But one said her home fell into band C, owing £976, while the other said band A, owing £488. She rang the council, assuming it was a mistake.
As well as two bedrooms, the bungalow has a kitchen and living room on the ground floor and a set of steps leading down to a basement, which Sarah doesn’t use.
Sarah Hudson received two letters about council tax shortly after moving into a two-bedroom bungalow in Poole in 2014
The space is empty, save for a few kitchen cupboards and a working sink, toilet and shower left there by the previous owner.
The line went quiet before the tax official said: ‘Your basement is classified as a separate dwelling. It’s what we call a self-contained unit. So you will be billed twice.’
Sarah couldn’t believe her ears. Estate agents had told her the property fell into band C and had never pointed out that the basement was considered a separate dwelling by the council.
The VOA is required to apply a separate council tax band to every building, or part of a building, ‘constructed or adapted for use as separate living accommodation’.
It is unclear what a ‘self-contained unit’ consists of and it is often left to the courts to decide whether an extension, basement or annex area meets the criteria to be billed separately.
Sarah challenged her banding and argued her case at a tribunal in December 2015
Broadly speaking, if a part of a building has a kitchen area, bathroom and living/bedroom area, it will be treated as a separate dwelling. This includes a ‘granny annexe’ to house an elderly relative.
Yet even if that part of the building is not lived in or treated as separate living accommodation, it will incur a tax bill.
Sarah challenged her banding and argued her case at a tribunal in December 2015.
While the panel was sympathetic, they rejected her appeal. So Sarah had builders remove the kitchen units and sink from her basement, but leave the toilet and shower.
Now lacking a food preparation area, the area is no longer considered a separate entity and she pays one council tax bill.
TAX BANDS MADE UP ON THE HOOF
Council tax pays for local services such as highway maintenance; the police and fire services; libraries; planning; transport; rubbish collection; and leisure and recreation.
Anyone over 18 has to pay, regardless of whether they own or rent their home, though some are eligible for discounts. If you are the only adult in the house or share your house with people who are exempt, such as a full-time student or someone with a mental disability, you should ask your council for a reduced rate.
How much a household has to pay is mainly determined by the value of the property and where it sits in eight valuation bands, ranging from the lowest, A, to the highest, H. They are calculated so that people on the top rate pay three times as much as those on the bottom.
Much of the inconsistency of the modern council tax system dates back to its birth in 1991. Every property in England and Wales was supposed to be assessed based on size, layout and location and classified into bands.
But many were subject to so-called ‘second-gear’ valuations instead. This involved estate agents, who were short on time, driving past streets of houses and guessing the properties’ value without stopping for a proper look.
In other words, your current council tax bill could be based on a piece of guesswork done 26 years ago. As a result the bands are often wildly out of kilter with the housing market.
Band A, for example, is for properties worth £40,000 or less – a measly sum by today’s standards – while band H is for homes valued at £320,000 or more. For every house built in the meantime, assessors had to work out what it would have been worth in 1991 and assign a band.
If you suspect you are in too high a council tax band, you can challenge it by contacting the VOA. They may send someone to assess your property. If the agency won’t budge, you can appeal to the Independent Valuation Tribunal and present your argument. There, you can represent yourself against experienced valuations officers who know every nook and cranny of the labyrinthine tax system.
And success is far from guaranteed: of the 42,250 challenges from April 2016 to March 2017, the VOA refused to change the band in 31,550 cases.
Of the 1,400 cases which were taken to the independent tribunal in that time, just one in five were successful.
Buy a home round the corner from Harrods and you could pay less than a family in Wiltshire
THE MANSIONS THAN CAN COST LESS THAN FAMILY HOMES
Picture a £136.4 million penthouse apartment in London’s Knightsbridge. The service fees alone are more than £3,000 a week and it’s no more than a five-minute walk to the famous Harrods department store.
Now consider a three-bedroom semi in rural Wiltshire, on the market for £335,000.
Its driveway can accommodate two cars and it boasts a modest garden. It may seem hard to believe, but the owner of the penthouse – Rinat Akhmetov, who happens to be Ukraine’s richest man – will pay £344 a year less in council tax than a family moving to Wiltshire.
This absurd situation is playing out across the country, where wealthy homeowners are asked to contribute less than those in dire financial situations.
Although the Valuations Office Agency is responsible for working out which council tax band each home should fall into, it does not decide what those charges should be. That’s up to individual councils. Council tax accounts for around 25 per cent of local authority income; the rest mainly comes from central government grants. So some councils charge households more if their handouts don’t cover their expenditure.
No property in Westminster can be charged more than £1,376.28 a year
Despite boasting some of the world’s most expensive homes, London boroughs including Westminster and Wandsworth impose some of the UK’s lowest council tax bills. No property in Westminster can be charged more than £1,376.28 a year.
Cliff Dalton, of the Chartered Institute of Public Finance and Accountancy, says: ‘Because the value of the housing market has soared and there hasn’t been a revaluation since 1991, the council tax system feels out of sync.
‘This is why you might find someone in central London living in a house worth £1 million but on a banding that seems quite modest.’
Council tax pays for local services such as highway maintenance; the police and fire services; libraries; planning; transport; rubbish collection; and leisure and recreation
A spokesman for Wiltshire Council says: ‘It is difficult to compare Wiltshire and London as there are many factors to consider, such as the income generated by each authority and its spending power. London would bring in much more money through car parking charges.
‘Shire counties’ annual public sector spending is £550 per head compared to more than £1,100 in London. We also face pressures that a city does not due to our rural location which means we have faced council tax rises.’
From April 2018, Westminster council will begin asking homeowners with properties worth £10 million or more if they want to make an additional, voluntary, council tax contribution.
Councillor Nickie Aiken says: ‘Westminster is home to some of the poorest and richest people in the country and some of the most expensive real estate in the world.
‘But while there is a reality to the cost of living in a capital, this is a council and a Government committed to fairness. There is more we can do to help those who are struggling to pay the bills.’
EXTENSION TRAP ON HOMES
Up to 1.6 million homes pose a council tax trap for prospective new buyers.
When a homeowner adds an extension to their house, it can push the property into a higher council tax band.
But, bizarrely, the new charges are not applied until the house is sold. That means you can do up your house and leave the higher council tax bill for the next occupant.
This little-known rule should take effect on the first sale of the property after it’s been improved.
After the sale goes through, the VOA judges whether the changes are significant enough to change the property’s banding. Estate agents should warn prospective buyers that the house has been marked with an ‘improvement indicator’. But this isn’t always the case.
Pam Allen is paying an extra £30 a month in tax for a loft conversion that was done by a former occupant almost 30 years ago – though the house has passed through several owners since.
Previous occupants had all paid band E rates and Pam had no reason to think her bill would be any different.
But after buying the detached bungalow in Stockport in 2014, a valuations officer from the council assessed the property and said the value added by the loft pushed it into band F.
They told Pam she was the first person to buy the house after the improvements had been made. In fact, the work had been done in 1990 and the house changed hands at least twice before Pam bought it.
The retired teaching assistant, 69, who lives on her own, says if she had known the property was a band F she would not have purchased it.
‘It’s galling to be the only person in a string of owners to be charged extra for work that was done decades ago,’ she says.
Generally, the VOA hears about extensions after a resident has applied to their local council for planning permission – but this is not normally required for loft conversions.
If you are considering buying a home and are not sure if it has been extended, the property council band list on voa.gov.uk shows if improvements have been made to a property.
Depending on how the improvements change the value of your home, your council tax banding could change.
When Money Mail put Jeremy, Sarah and Pam’s cases to HM Revenue & Customs and the Department for Communities and Local Government they said they do not comment on individual cases.
The Government adds that in its view a council tax revaluation is unnecessary as it would cost the taxpayer millions and could result in higher bills for some homeowners.
It further adds that council tax is cheaper in real terms today than it was in 2010.