Council tax reduction calculations follow a specific formula that takes into account your income, household size, and local council rules.Understanding how this calculation works helps you maximize your potential savings and ensures you get the correct amount.
This comprehensive guide breaks down the calculation process step-by-step, explains the formulas used, and shows you exactly how councils determine your reduction amount. We'll cover the basic formula, applicable amounts, income assessment, and provide real examples.
Key Takeaways
- • Basic formula: (Applicable Amount - Income) × 20% + (Council Tax × Reduction %)
- • Applicable amount: Based on household size, age, and circumstances
- • Income assessment: Most income counted, some disregarded
- • Savings impact: Tariff income added for savings £6,000-£16,000
- • Local variations: Each council has different rates and rules
The Basic Calculation Formula
Council tax reduction uses a specific formula that councils apply to determine your entitlement. Understanding this formula helps you estimate your potential reduction and understand why you get a certain amount.
The Standard Formula
This is the basic formula used by most councils, though some may have variations
Formula Components:
- Applicable Amount: Your household's needs allowance
- Income: Your total income after disregards
- 20%: Standard taper rate for income above applicable amount
- Reduction %: Percentage of council tax you're entitled to
How It Works:
- 1. Calculate your applicable amount based on circumstances
- 2. Determine your total income (after disregards)
- 3. If income is below applicable amount, you get maximum reduction
- 4. If income is above, reduction decreases by 20% of the excess
- 5. Apply the final percentage to your council tax bill
Understanding Applicable Amounts
The applicable amount is the foundation of the calculation - it represents how much money your household needs to live on. This amount varies based on your household size, ages, and special circumstances.
Household Size
- Single person: £73.10 per week
- Couple: £114.85 per week
- Additional adults: £73.10 each
- Children: £66.33 each (under 14)
- Teenagers: £73.10 each (14-17)
Special Circumstances
- Disability premium: £34.95 per week
- Severe disability premium: £69.40 per week
- Enhanced disability premium: £17.75 per week
- Carer's premium: £38.85 per week
- Pensioner premium: £182.60 per week
Important Note About Applicable Amounts
These are typical amounts, but each council sets its own rates. Some councils are more generous than others, offering higher applicable amounts. This is why the same person might get different reduction amounts in different areas.
Example: A single person might get £73.10 per week in one council, but £80.00 per week in a more generous council. This difference can significantly affect your final reduction amount.
Income Assessment and Disregards
Not all income is counted in the calculation. Councils apply various disregards and exemptions to ensure you're not penalized for certain types of income or benefits.
Income That's Counted
- Wages and salary from employment
- Universal Credit and most benefits
- Pension income (state and private)
- Self-employment earnings
- Investment and rental income
Income That's Disregarded
- Child Benefit (completely disregarded)
- Disability Living Allowance (DLA)
- Personal Independence Payment (PIP)
- Attendance Allowance
- War pensions and compensation
How Savings Affect the Calculation
Savings and capital are treated differently in council tax reduction calculations. Understanding how your savings affect your entitlement is crucial for accurate estimates.
Savings Thresholds and Tariff Income
Under £6,000
No impact on calculation
Full entitlement
£6,000 - £16,000
Tariff income applies
£1 per £250 over £6,000
Over £16,000
No entitlement
Disqualified
Tariff Income Calculation Example
If you have £10,000 in savings:
- • Amount over £6,000: £10,000 - £6,000 = £4,000
- • Tariff income: £4,000 ÷ £250 = £16 per week
- • This £16 is added to your other income in the calculation
Step-by-Step Calculation Example
Let's work through a real example to show exactly how the calculation works in practice.
Example: Single Person with Part-Time Work
Circumstances:
- • Single person, age 45
- • Part-time work: £150 per week
- • Universal Credit: £368 per month
- • Savings: £3,000
- • Council Tax: £1,400 per year (Band B)
- • Living in Birmingham
Calculation Steps:
Step 1: Applicable Amount
Single person: £73.10 per week
Step 2: Total Income
Wages: £150 + UC: £85 = £235 per week
Step 3: Income vs Applicable
£235 > £73.10 (excess: £161.90)
Step 4: Reduction Calculation
Excess × 20% = £161.90 × 0.20 = £32.38
Reduction = £73.10 - £32.38 = £40.72 per week
Final Result
Weekly reduction: £40.72
Annual reduction: £40.72 × 52 = £2,117.44
Percentage of council tax: £2,117.44 ÷ £1,400 = 151% (maximum 100%)
Final reduction: 100% of £1,400 = £1,400 per year
Calculate Your Exact Reduction Amount
Use our 21-question calculator to get your precise council tax reduction amount. Takes just 3-5 minutes and shows you exactly how much you could save.
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GOV.UK Calculator
Official government calculator for council tax reduction calculations.
Citizens Advice
Free advice on council tax reduction calculations and methods.
Need Help Understanding the Calculation?
If you're unsure about how your reduction is calculated or need help understanding the formula, don't hesitate to contact your local council or seek advice from Citizens Advice. They can help you with accurate calculations and application guidance.
Learn more about council tax reduction calculations