According to statistics released by the Department for Works and Pensions Households below average income: an analysis of the income distribution FYE 1995 to FYE 2020 median household incomes increased between 2019 and 2020 in the UK; both for before housing costs (BHC) and after housing costs (AHC) categories. 

This increase is also witnessed when taking real disposable income into consideration; which accounts for inflationary trends. This means that despite rising inflation in the country, real incomes have increased, which indicates that taxation rates have not exceeded the inflation rate to help people maintain their purchasing power.

As per the same report, median household income before housing costs in real terms significantly increased in 2020 (as compared with the previous year) rising to £547 per week (£28,600 per year). Similarly, after deduction of housing costs, the average income also significantly increased to £476 per week (£24,900 per year).

The reason for this increase may be credited to the fact that the year 2020 witnessed favourable trends in the UK labour market with an increase in employment numbers, coupled with earnings growth of 3.2 per cent; which exceeded the annual CPI inflation rate of 1.7 per cent. 

What Is Classed As Low Income For Council Tax Reduction?

Households in the UK are classified as being on low income if they live on less than 60 per cent of the median net disposable income earned. As per recent data gathered and analysed by the Department for Work and Pensions People in low income households – GOV.UK Ethnicity facts and figures a household with a couple having no children would be considered to be in low income if their annual household income is less than £17,100 BHC (before housing costs) and £14,800 AHC (after housing costs). 

Two things are to be understood here:

  • Household income is the combined income of all earning members of a family sharing a house. This pre-tax income does not account for taxes and other deductions but includes all income-based benefits.
  • When gathering data for statistical analysis, household incomes are equivalised. This is done so that the numbers of adults versus children are taken into account and there is no disparity in comparisons across varied households with different family structures.

According to a DWP report titled Households below average income: an analysis of the income distribution FYE 1995 to FYE 2020 median income for the term 2019-2020 has been taken as £547 per week. This value serves as the basis for measurement of which income bands fall within the median range and which exceed it. 

Further analysis through the report shows that the 60 per cent of median income mark falls at £328 during the last fiscal. This means that any household with a combined income of less than £328 is considered to be on low income.

While the median income will change every year, now that you have an understanding of how it is worked out, it may help you in comparing it with your own income. 

If an individual is earning 60 per cent below the median income threshold, they become eligible for a council tax reduction on their bill. However, they must contact their local council office to Apply for Council Tax Reduction and share relevant details regarding their income and circumstances. The council will then proceed with their application to decide the percentage of discount that will be applicable. 

While the aim of this article is to explain the relationship between low income and council tax reduction, it will also elaborate on the other factors that determine council tax reduction; and in some cases, complete exemption. For this purpose, we will discuss the following key sub-areas:

  • whether low income is the only criterion that determines eligibility for council tax reduction
  • factors other than low income that determine council tax eligibility
  • circumstances that qualify individuals for council tax exemption   

Is Low Income The Only Criterion For Council Tax Reduction?

Although council tax is a means-tested tax, it is primarily based on the market value of one’s property and the property band assigned to it by the Valuation Office Agency. So, it’s a combination of property and personal tax for homeowners and tenants living in England, Scotland and Wales.

While being on low income does increase one’s eligibility to apply for council tax reduction (and perhaps adds to the chances of the application being approved by the local council), it is not a stand-alone criterion upon which the decision for council tax reduction is based.

You may be low on income but if you jointly hold capital with someone, you will be considered as half owner of it. For instance, if someone has joint ownership of an asset or they share joint savings account with someone (other than their partner), they will be considered as half owner of the total amount of saving in that account.

However, in case you share a joint saving account with your partner, you will be considered as co-owner of their savings as well. This means that their savings in a joint account with you will be considered as your savings.

If the claimant is on low income with little or no savings, they may be eligible for a 100 per cent discount on their council tax bill. This means that until their circumstances change, they will be completely exempted from paying council tax.

Additionally, the following factors will also be considered by local councils as they review a council tax reduction application:

  • The area where the applicant resides-each council has their own council tax reduction scheme. Depending on the area in which the applicant resides, the rates and requirements for council tax reduction may be different.
  • Their circumstances-in addition to the applicant’s income the local council will also take into consideration, the income of the applicant’s partner (if they live with one), number of children (if any), any benefits that they may be receiving and their residency status.
  • Their combined household income-this includes the applicant’s partner’s income (in addition to their own), any joint savings that they have, a pension that either of them might be receiving
  • Their household demographics-the number of adults living in the house (in addition to the applicant and their partner) as well as the number of children in the household.

How Else Can I Avail Council Tax Reduction?

Whether residents own or rent their homes, they may qualify for a council tax reduction in their bill, if they meet any of the following criteria:

  • living alone: regardless of financial circumstances, living alone is enough reason to avail of a 25 per cent discount as council tax rates are established on the assumption that each house will comprise of two adults.
  • living with a full-time student: full-time students and student nurses are exempt from council tax bills. Sharing a residence with them qualifies you for a discount.
  • living with someone below 18 years of age: since council taxes are applicable on adults, anyone below the age of 18 does not qualify to be counted as a member of the shared household where council tax is levied.
  • being a carer: while there are additional criteria to be considered her, being a carer for another member of the household for at least 35 hours per week qualifies the individual for a CTR. 
  • changes in home value: if there is a change in the surroundings of your residential property causing a full-time decrease in its value, the council tax band may be lowered by a valuation expert, enabling you to enter a lower band with reduced council tax bills due.
  • the desired mode of payment: while council tax payments are spread over 10 monthly instalments, should you require a change such as 12-month instalments, it will reduce the monthly amount to be paid. On the other hand, should you prefer to pay the annual amount in a lump sum, a bulk payment may also qualify you for a discount.

How Can I Get Exemption From Council Tax?

To be able to claim eligibility for exemption council tax payments, claimants must be able to fulfil the following criteria:

  • the owner does not live in the said property and lives in a care home
  • the owner is receiving hospital care at a medical facility
  • the owner/tenant is temporarily living elsewhere to take care of someone
  • the owner/tenant is in the armed forces and is stationed away from the premises at times
  • the owner/tenant is serving jail time prison (not for non-payment of council tax bills)
  • the said property is/was registered by a charity and is not used for residential purpose
  • the said property is an extension/annexe of a single property
  • properties that have been repossessed
  • properties that are purchased to be demolished

Further details about council tax exemption are available here: Properties exempt from council tax – Council tax discounts, reductions and exemptions – Newham Council

If an individual fulfils any of these criteria, they must contact their local council office and raise an appeal for council tax exemption.

Conclusion:

A detailed study of the DWP’s statistical analysis of low-income households reveals that while higher-income households receive their income in the form of earnings while low-income households rely on state benefits to classify as income. With the median UK income at £547 (per week) during 2019-2020, anyone earning 60 per cent less than this, equal to or below £328 is considered to be on low income. 

However, being on low income does not automatically qualify an individual to be eligible for council tax reduction. The local council will also take into account their savings, their partner’s income and savings, whether they are claiming any other benefits, as well as their household composition of adults versus no-adults to decide whether or not the applicants will be awarded council tax reduction and if yes, what would the amount be. 

FAQs: What Is Classed As Low Income For Council Tax Reduction?

What is the earning threshold for council tax benefits?

As a general rule, if someone is of working age but is not holding a job or they are earning below £86.80 per week, they will not be required to pay council tax; unless someone aged 25 or above is living with them and earning more than £86.79. If an individual is earning 60 per cent below the median income threshold, they become eligible for a council tax reduction on their bill. However, they must contact their local council office to formally apply for a council tax reduction and share relevant details regarding their income and circumstances. 

What qualifies for low-income in the UK?

Households in the UK are classified as being on low income if they live on less than 60 per cent of the median net disposable income earned. As per data published by the Department for Work and Pensions in March 2021 a household with a couple having no children would be considered to be in low income if their annual household income is less than £17,100 BHC (before housing costs) and £14,800 AHC (after housing costs). The median income for the term 2019-2020 has been taken as £547 per week; with the 60 per cent of median income mark falling at £328.

What benefits qualify for council tax reduction?

An individual who is in receipt of any of the following benefits classifies as being eligible for a council tax reduction on their bill:

  • Income support
  • Job seeker’s allowance
  • Employment and support allowance
  • Pension credit
  • Universal credit

Does universal credit count as council tax reduction?

Yes, if an individual is on universal credit, they can claim for council tax reduction. However, universal credit is run by the Department for Work and Pensions and does not directly cover you for council tax reduction. You must file an application with your local council office stating the details of the benefits you receive.

What is the difference between council tax support and council tax reduction?

There is no difference between the two terms. Council Tax Support is essentially the same as Council Tax Reduction. It is a benefit to help people who are low on income or claiming benefits so that they may be able to pay their council tax bills.

References:

Check if you can pay less council tax

Apply for Council Tax Reduction

Council Tax Support | Claiming Benefits

How to apply for council tax reduction if you have low income or you receive benefits

Persistent low income – GOV.UK Ethnicity facts and figures

Households below average income: an analysis of the income distribution FYE 1995 to FYE 2020

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John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.