The UK government has announced that the Council Tax cap, which limits increases to 5% a year, will be lifted in six areas in 2026 and 2027.
The move is designed to help local authorities that will see funding cuts under the plans to restructure government funding to offer more support to deprived areas.
We don’t yet know how much Council Tax will increase in these areas in 2026.
What is the Council Tax cap?
UK local authorities, usually known as councils, tax residents based on the value of their homes. The funds are used to provide essential local services, as well as maintain roads and other public facilities.
Council tax rates are adjusted every year, with the changes coming into effect in April in line with the new tax year. Usually, councils are able to increase tax rates by up to 5% every year.
In recent years, as high inflation and the cost of living crisis have increased both the cost to provide services and the demand for council-funded support, local authorities have consistently increased taxes by the maximum amount permitted.
Why has the Council Tax cap been lifted?
Keir Starmer’s Labour government plans to restructure how government funds are distributed among local councils. They have acknowledged that austerity measures in previous years have disproportionally affected some of the most deprived areas in the UK. The plan is to increase the share of national-level government funding to these areas.
However, these plans will also see some other areas receive less funding from the national government. Six of these local authorities will be able to raise Council Tax rates above the usual 5% in 2026 and 2027.
Which areas will see higher tax increases?
The affected areas are all in London and the South of England. They are:
- City of London
- Hammersmith and Fulham
- Kensington and Chelsea
- Wandsworth
- Westminster
- Windsor and Maidenhead
These areas were all identified as currently having very low Council Tax rates. In fact, Wandsworth and Westminster have previously been the two areas with the lowest Council Tax rates in the whole of the UK.
When has the Council Tax cap been lifted before?
Officially speaking, any local council can raise taxes by more than 5% a year if local voters agree to the measure in a referendum. However, this has never happened – voters typically strongly oppose suggested tax increases.
In a few instances, the government has granted permission to local authorities to raise Council Tax by higher amounts without voters approving the measure. This is usually in the face of the council issuing a Section 114 declaration of bankruptcy.
Over the last two years, residents of Birmingham (where the council declared bankruptcy in 2023) have seen Council Tax bills increase by more than 17%. In 2023, Croydon Council was permitted to raise tax rates by 15%.
How else is Council Tax changing?
The announcement that the Council Tax cap is being lifted in these areas follows the news that properties in the highest tax bands will soon pay additional surcharges on tax bills.
The measure, part of the 2026 budget plans, will see property tax bands reassessed for the first time since 1991. Properties that fall under the three highest bands – generally those worth £2m+ – will pay an additional tax charge of up to £7,500 a year.
The change won’t be effective until 2028, as the government first needs to carry out property surveys to assess whether homes are currently in the correct band.
Can I cut my Council Tax bill?
If you suspect your home is in the wrong tax band, you can request that it be reassessed ahead of schedule. If you are correct, then your tax band can go down, but be warned that it can also go up. If your band doesn’t change, you may also be asked to pay a fee to cover the cost of the reassessment.
There are also a number of Council Tax discounts and exemptions available to claim. Find out more here, and see if you can claim a discount on your Council Tax payments.
