How is council tax calculated and how much could it go up?
- Published
The government expects council tax in England to rise by the maximum amount every year until 2029, according to a leading economic think tank.
The IFS says a "big chunk" of the funding for local authorities which was set out in the government's Spending Review assumes bills will rise by just under 5% in April 2026, 2027 and 2028.
Most councils in England put council tax up by the maximum amount in April 2025, and average bills also rose in Wales and Scotland.
What is council tax for and who pays it?
Council tax is a compulsory charge on properties in England, Scotland and Wales, external.
It is set by local authorities to raise money for providing services to residents, including:
rubbish collection
street lighting
libraries
police and fire services
youth clubs
parks and recreation facilities
care services
Typically, anyone who is over 18 and owns or rents a home has to pay council tax.
However, there are some exemptions and discounts.
Someone living alone, for example, is entitled to a 25% reduction, external, and properties occupied only by students are completely exempt.
Some discounts are available if you - or someone you live with - has a disability, external.
Northern Ireland uses a domestic rates system, external instead of council tax.
What is expected to happen to council tax in 2026?
Councils with responsibility for social care can increase bills every year by 4.99% without having to hold a referendum or get approval from central government.
Smaller councils without social care duties can increase bills by up to 2.99%.
Documents about police funding released as part of the government's Spending Review assume councils in England will put bills up by the maximum amount every year during the period covered by the calculations.
IFS director Paul Johnson said that this would mean bills were set to rise "at their fastest rate over any Parliament since 2001-05".
Chancellor Rachel Reeves said there had been no change to the cap rules, which were introduced by the previous Conservative government.
"It is a cap, councils don't have to increase council tax by 5%," she told BBC Breakfast.
But the Local Government Association said council budgets were under "severe financial pressure", and services may have to be cut even if bills do rise by the maximum.
How much did council tax go up in April 2025?
Of the 384 councils in England subject to the referendum rules, 294 (77%) put bills up by the maximum amount.
Another 56 (15%) were close to the limit. Eight authorities (2%) either made no change or reduced bills.
The government let six areas introduce bigger rises to help deal with funding pressures.
Bradford Council increased bills by 10% while they rose by 9% in Windsor and Maidenhead, and in Newham.
Birmingham, Somerset and Trafford put bills up by 7.5%.
A number of other councils were not allowed to put up bills by more than the standard maximum, including Hampshire, which had asked for a 15% uplift.
It means the average Band D council tax bill in England for 2025-26 is £2,280, which is an increase of £109 or 5% on the 2024-25 figure of £2,171.
What happened to council tax in Scotland and Wales?
Council tax rates in Scotland had been frozen or had limited increases since 2007, but went up in April. Bills rose by an average of 9.6% in April, with increases of at least 10% in 13 areas.
It means the average Band D council tax bill in Scotland for 2025-26 is £1,543, up from £1,418 in 2024-25.
The country's 32 councils had warned that they faced a potential shortfall of £392m in 2025-26, which could rise to £780m the following year.
The Scottish government said it was giving councils an extra £1bn in 2025-26 to help limit increases.
Council tax rates in Wales increased by an average of 7.2% in April.
It means the average Band D council tax bill in Wales for 2025-26 is £2,170, up from £2,024 in 2025-25.
Wales' 22 local authorities had been given £253m in December to help reduce increases, but council leaders said more was needed.
How is council tax calculated?
How much you pay depends on your property's council tax band. Broadly speaking, the more expensive the property, the higher the band.
In England and Scotland, bands are based on the price the property would have sold for in 1991. Wales uses 2003 prices and Northern Ireland 2005 prices.
You can check your home's band in:
Council tax bills also include additional charges.
These are used to fund the cost of care homes and other adult social care services. Another is set by local police and fire authorities to help fund their work.
Some cities with mayors, such as London and Manchester, can also add a separate charges for other services.
Councils which provide social care services can increase council tax by a larger amount
Where else do councils get their money?
About half of local authority funding comes from council tax, according to the Institute for Government (IFG).
Councils in England can also raise money by charging for services including parking, swimming pools and planning applications.
Most of the rest comes from a combination of business rates and central government grants.
Labour had promised £2bn of central government funding for English councils in the year from April 2025, an extra £700m on top of the £1.3bn announced in October's Budget.
But £515m of that was earmarked to pay for higher National Insurance (NI) contributions from April.
The local government settlement in the Spending Review provides an additional £3.3bn for local authorities in 2028-29 compared with 2023-24.
The Spending Review also revealed revealed the Ministry of Housing, Communities and Local Government would see a 1.4% cut in its day-to-day budget.
But the government said councils' "core spending power" would still go up, if they increased council tax by the maximum amount.
Separately the government is consulting on directing more money to deprived councils in England from 2026.
What happens when a council goes 'bankrupt'?
Councils cannot technically go bankrupt, but if they cannot balance their budget for the financial year, they can issue what is called a section 114 notice, external.
This means they cannot commit to most new spending, and residents could see reduced services, such as fewer bin collections or cuts to libraries.
Before 2018, only two councils had issued a section 114. Twelve have been issued since.
Birmingham City Council went bust in 2023, with a £760m black hole. It followed Woking Council, Thurrock and Croydon (for the third time).
A number of local authorities in England have not issued section 114 notices but are receiving so-called "exceptional financial support", external, to help manage their budgets.
Middlesbrough Council was one of 19 authorities allowed to borrow money to fund day-to-day spending in 2024-25.