Correspondence

Council Tax information letter 4/2024: Pension-age Council Tax Reduction applicants and Universal Credit

Published 16 August 2024

Applies to England

To: Local authorities in England - For the attention of the Council Tax section

From: Local Taxation Division, Ministry of Housing, Communities and Local Government (council.tax@communities.gov.uk)

Date: 16 August 2024

The Collection Fund (Council Tax Reductions) (England) Directions 2024

This letter confirms that the Collection Fund (Council Tax Reductions) (England) Directions 2022 (“the 2022 Directions”) were revoked on 16 August 2024 and replaced by the Collection Fund (Council Tax Reductions) (England) Directions 2024 (“the 2024 Directions”) which can be found at Localising Council Tax support 2024 Directions.

The 2022 Directions required billing authorities which provide a discretionary discount under section 13A(1)(c) of the Local Government Finance Act 1992 (“the 1992 Act”) to transfer a sum equal to the value of the discount into its collection fund, to compensate major preceptors for the loss of income. The 2024 Directions maintain this approach but include an exception for a situation where a pensioner who currently claims Working Tax Credit (WTC) and migrates to Universal Credit (UC) experiences a loss of Council Tax Reduction between 1 September 2024 and 31 March 2025. This exception will enable billing authorities to offset the increase in the taxpayer’s bill at no net cost.

Background

The Tax Credit system is due to close in April 2025. As part of that closure programme its remaining pension age tax credit recipients will receive a notice asking them to either move to Pension Credit (notices being issued from July 2024 onwards) or Universal Credit (notices being issued from September 2024 onwards) depending on their circumstances.

Those who are currently eligible for pension-age Council Tax reduction but who move to UC have the potential to see their council tax bills rise. This is because the Council Tax Reduction Schemes (Prescribed Requirements) (England) Regulations 2012 (“the 2012 Regulations”) specifically exclude people who receive (or whose partner receives) UC from receiving pension age council tax reduction. Instead, they would have to apply to a locally designed working age scheme, which may provide a smaller reduction. The number of affected pensioners is likely to be small and limited to those who have applied for council tax reduction, are self-employed and earning a very low income, and those who have deferred their state pension.

The 1992 Act only allows the Secretary of State to make regulations addressing the potential impact of the migration with effect from 1 April 2025. Until this can be done as part of the annual update to the 2012 Regulations in January 2025 and to protect the Council Tax reduction of affected pension age applicants during 2024-25 the government encourages billing authorities to offset any impacts they encounter through the provision of discretionary discounts made under section 13A(1)(c) of the 1992 Act.

The 2024 Directions allow them to do this without making a payment into the collection fund. In doing so they follow the example of the 2022 Directions which allowed billing authorities to offset the impact of the £350 thank-you payments on the council tax reduction claim of Homes for Ukraine hosts. The net impact of this exception will be that billing authorities and major preceptors will receive the same amount of income as if there had been no loss of council tax reduction for pensioners migrating from WTC to UC.

In all other respects the 2024 Directions operate in the same way as the now-revoked 2022 Directions. The department is grateful for the technical assistance provided by CIPFA in the preparation of the Directions.

Should you have any queries, please contact the department at: council.tax@communities.gov.uk.