Jordan White DipPFS
Ways to put your council tax payment break to good use
After your rent or mortgage, council tax is one of the highest household bills you have to pay.
But for most people, council tax payments aren’t spread equally throughout the year.
It’s normal to pay your council tax across 10 months of the tax year.
So every April (the tax year starts on April 6th) you get a new council tax bill for the next 12 months, and by default you’ll make 10 monthly payments to pay it off.
This means that you won’t have any council tax payments to make in February or March, effectively giving you a 2 month break in payments.
For many of us, this can amount to hundreds of pounds remaining in your bank account. While it’s not a saving, per se, this temporary break in payments offers a small mental financial boost.
Putting this ‘mental pay rise’ to good use can help improve your finances for the rest of the year.
Simple ways to put your council tax ‘savings’ to good use
1) Use it to clear any priority debts
If the balance of your credit card is higher than the value of the 2 month council tax payment break, use that excess money in February and March to pay off credit card debt.
Your normal council tax monthly payment is £150. So that’s £300 ‘extra’ in your bank account between February 1st and April 1st.
If you have credit card debt of £500, then consider paying off an extra £150 in February and March.
Lots of us struggle to pay our credit card bills on time, so the debt snowballs as interest accrues.
If you ever come into a lump sum of cash, using it to clear as much of your credit card debt as possible will help you in the long term.
2) Use it to build up your rainy day fund
Your rainy day, or emergency, fund is a stash of cash you can lean on when unexpected bills need paying.
It offers so much peace of mind knowing that things like a broken boiler, car repair or emergency dental treatment can be paid for from your savings, rather than on a credit card.
If you don’t have an emergency fund yet, putting in a few hundred pounds is a start. Then start to add bit by bit whenever you can.
3) Put it towards your retirement (yes, seriously)
Consider making extra payments into your pension for 2 months.
Depending on how long you have until retirement, a few extra hundred pounds invested in your pension this year could be worth much more in 10, 20 or 30 years’ time. And that’s not factoring in the tax-free benefits of investing in your pension.
Just remember that once you’ve put into your pension, you can’t access it until you’re 55, at the earliest.
4) Put aside cash for yearly expenses
Birthdays, Christmas, holiday spending money….these are all things that creep up on us every year but we often don’t plan for until the last minute.
If you do have lots of yearly expenses, try factoring them into your monthly budget.
Let’s take Christmas as a common example. Rather than wait until November or December to think about how you’re going to pay for presents and food, take that money you’d have normally spent on your council tax in February and March and put it aside for Christmas. That’s a few hundred pounds already saved for later in the year.
Note that this should be separate from your emergency fund, as Christmas is a ‘known’ expense.
You could use this for a birthday fund if you’re fortunate/unfortunate enough to have lots of people to buy gifts for throughout the year.
Or use it towards your holiday spending money – something most of us forget about until the month we go away.
5) Consider making extra payments on your mortgage (or other loans)
With interest rates at historical lows, keeping your money in your bank account isn’t the best use of your money if you already have a comfortable level of savings.
If you have a mortgage, you should be able to make additional repayments on top of your standard monthly repayment. So if you have a spare few hundred pounds in the next couple of months, extra mortgage payments, no matter how small, will help your pay off your mortgage quicker.
This may also work for things like personal loans or car finance, but the rules on early repayment will be stricter, so double check the terms.
6) Invest in a tax-free product
If you’re already a shrewd budgeteer, you might want to make your money work even harder for you.
Pensions aside, you could invest this council tax payment break in something more accessible.
A Stocks and Shares ISA is a great option for ‘novice’ investors looking to make tax-free income from the stock market.
It’s only advised to invest in stocks if you:
have the appropriate tolerance for risk i.e. understand how risky you are willing to be
don’t need to get hold of the money you invest for at least 5 years.
Any gains you make from your initial investment are tax free.
So if you stick £300 in a S&S ISA that grows, on average, 5% a year*, in 5 years’ time it could be worth £385.
Compare that to just leaving it in your bank account where it effectively will be worth less than £300 in 5 years’ time due to a combination of inflation and poor interest rates.
*A conservative estimate based on historical growth of the stock market.
So those are some of the ways you can put a council tax payment break to good use.
That said, if you’re finding your council tax bills a struggle, you might be better off switching to 12 monthly instalments across the year. Most councils should offer this. This will reduce your monthly payments but you won’t have any ‘free’ months.
Personally, I always look forward to February. I make my monthly budget work for me with a 10 month council tax payment plan. This gives me a bit of extra cash for 2 months and I use that towards some of the tips I’ve listed here.
And if you just want to spend it on having a good time, well it’s up to you to decide what’s best for you.