Little-known rule means council tax bill may be bigger than you think | Personal Finance | Finance

Council taxpayers could find they have a bigger bill than they were expecting if they don’t check up on the rules.

The issue came to light after the Government was asked in Parliament if it had made an assessment of cases where a property has undergone “significant structural extensions” but stays in the same council tax band.

The council tax band you are put in depends on the value of your property, so if your home is worth more, you pay more tax. Making some major upgrades to your home could increase the market value of your property.

Housing minister Jim McMahon provided a response to the question. He said: “Improvements to properties, such as extensions, are not generally taken into account for council tax banding purposes until the property is sold.

“The Government believes it is right that people are not deterred from improving their home by the prospect of their council tax increasing.”

However, he said there is one way that upgrading your home could result in a higher council tax bill: “When the property is sold, the council tax band may increase, but only if the alterations have added sufficient value to push the property into a higher band.”

Mr McMahon said the Government does not have any plans to change these policies. Council tax bills increased from April, with many councils in England choosing to raise rates by the maximum 4.99%.

This increased average bills for a Band D home up to £2,280 a year. Many councils also bought in a new levy from April charging a 100 percent premium on second homes.

The 4.99% figure is the most a council can raise their rates without holding a referendum on the issue. However, some struggling councils have been permitted to increase their rates by above this level.

Birmingham City Council increased rates by 7.5% in April, after it was declared effectively bankrupt in October 2023.

Figures from charity Debt Justice suggest there has been a 40% increase in the number of council tax payers who were in arrears over the past year.

The Local Government Association (LGA), which represents councils across England and Wales, said that local authorities are doing their best to support residents facing financial difficulties.

Councillor Adam Hug, the LGA’s housing spokesperson, said: “All councils make every effort to collect that which is owing to them and 96 per cent of council tax is collected in the year in which it is due.

“When there are instances of unpaid council tax, it is often due to complex circumstances or people already facing hardship, and local authorities seek to work with people to work out a payment plan and avoid them lapsing into debt.”