Council Tax & Home Extensions London: Will Your Bill Go Up?
Most London homeowners building an extension worry their council tax bill will jump as soon as work finishes. The reality is more nuanced — and generally more reassuring than the rumours suggest. Here is how the system actually works.
Quick Answer
Building a standard home extension does not immediately increase your council tax band while you continue to live in the property. The Valuation Office Agency (VOA) records an improvement indicator but cannot legally change the band until the property is sold. At that point the new owner may be placed in a higher band. The exception is a self-contained annexe, which is given its own separate council tax band from the moment it is completed.
~£2,000/yr
London avg Band D
50% (relative)
Annexe discount
100% (dependent)
Annexe exemption
Check your specific property constraints
Free Property CheckHow Council Tax Bands Work in England
Council tax bands in England are based on what a property would have sold for on the open market on 1 April 1991 — the date on which all properties were valued when council tax was introduced in 1993. That valuation date has never been updated. There has been no general revaluation in England since the system was created, meaning your 2026 council tax band reflects a 35-year-old assessment of your property's value.
Properties are placed in one of eight bands (A through H) based on those 1991 values. In London, most residential properties fall in bands C through F. When a property is sold or significantly altered, the Valuation Office Agency (VOA) — the government body responsible for council tax valuations — assesses it against the 1991 scale, working out what it would have been worth in April 1991 in its current condition.
| Band | 1991 value range | Ratio to Band D |
|---|---|---|
| A | Up to £40,000 | 6/9 of Band D |
| B | £40,001 – £52,000 | 7/9 of Band D |
| C | £52,001 – £68,000 | 8/9 of Band D |
| D | £68,001 – £88,000 | 1 (reference) |
| E | £88,001 – £120,000 | 11/9 of Band D |
| F | £120,001 – £160,000 | 13/9 of Band D |
| G | £160,001 – £320,000 | 15/9 of Band D |
| H | Over £320,000 | 18/9 of Band D |
Band D is the reference point against which all other bands are calculated. The London average Band D bill for 2025–26 is just under £2,000 per year, though there is significant variation across boroughs. Westminster and Wandsworth are among the lowest in London at around £1,000–£1,050 per year for Band D, while outer London boroughs such as Kingston and Bromley charge over £2,200 per year. Hackney and Lambeth sit close to the London average at just under £2,000.
Does Building an Extension Increase Your Council Tax Band?
For most London homeowners, the short answer is: not while you continue living there.
The VOA is legally prohibited from increasing a property's council tax band as a result of improvements while the same owner continues to occupy the property. This rule exists precisely to avoid penalising homeowners for investing in their homes. The VOA instead records what is called an improvement indicator — a note on the property's council tax record confirming that work has been carried out that may affect its value.
This improvement indicator sits on the property record until the property is sold. When a sale is registered, it triggers a review. The VOA then reassesses the property — not against current market values, but against the 1991 scale — working out what the extended or improved property would have been worth in April 1991 in its current form.
Key point: Any band change arising from an improvement indicator affects the new owner, not you. If a reassessment after sale places the property in a higher band, the purchaser will pay at the new rate — not you. This is one reason why accurate property disclosure at sale matters, and why estate agents and solicitors should be aware of any improvements made.
Why many extensions do not change the band at all
Even where an improvement indicator triggers a review on sale, a band increase is far from guaranteed. Council tax bands cover broad value ranges — Band D alone spans from £68,001 to £88,000 in 1991 values. A single-storey rear extension adding 15–20m² to a London terraced house may not add enough assessed value to push the property from one band to the next.
The VOA's own guidance makes clear that improvements often do not result in a band change, particularly for properties already well within a band's value range. In practice, extensions that genuinely risk pushing a property into a higher band are usually large, high-specification additions to properties already close to the top of their current band.
Check your property's planning constraints first
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What Actually Triggers a Council Tax Band Review
Not all council tax band changes are triggered by improvements. Understanding when the VOA can change a band — and when it cannot — is useful context before and after any building work.
Sale of the property (after improvements)
The most common trigger. If an improvement indicator exists on the record, a sale prompts the VOA to review the band. The new owner will be placed in the correct band for the property in its current state, assessed on the 1991 scale.
General revaluation
England has not had a general council tax revaluation since 1991. One has been discussed but not implemented. If a general revaluation occurs, all properties would be reassessed at once, regardless of whether they had been improved.
Physical change to the property
Certain material changes — demolition of part of a building, splitting a house into flats, or converting a building to a different use — can trigger a band review at any time, not just on sale. A standard extension to an existing house does not fall into this category.
Completion of a new build or self-contained annexe
A new property — including a newly completed self-contained annexe — requires a council tax band from the date it is capable of occupation. The local authority issues a completion notice, and the VOA then values the new dwelling and assigns a band. This applies immediately, not just on sale.
Proposal by the taxpayer
You can propose that your property is in the wrong band — too high or too low. The VOA reviews the proposal and decides whether to change the band. Grounds for a proposal include where you have moved into the property within the last six months, or where the VOA has changed your band in the last six months.
How the council knows about your extension
Your local planning department and building control both routinely share information with the VOA. When you apply for planning permission or building regulations approval — and when your building inspector signs off the works at completion — this information is passed to the VOA and an improvement indicator is added to the council tax record.
This is automatic and routine. You do not need to notify the VOA yourself, and you cannot prevent the improvement indicator being added. It does not affect your current council tax bill — it simply records that the property has changed.
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Get a free check →Self-Contained Annexes: A Different Set of Rules
A self-contained annexe — one with its own kitchen, bathroom, bedroom, and external entrance — is treated as a separate dwelling for council tax purposes from the day it is capable of being occupied. This is the most significant council tax implication of any home extension project.
Unlike a standard extension, which stays part of the main property and does not trigger an immediate band change, a self-contained annexe is given its own council tax band by the VOA. The council issues a completion notice when the annexe is finished, the VOA values it, and from that point the annexe generates a separate council tax bill — in addition to the council tax you already pay on the main house.
Important distinction: Adding a 20m² rear extension to your kitchen does not create a separate council tax liability. Adding a 20m² rear extension fitted out as self-contained accommodation with its own kitchen, bathroom, and separate entrance does. The difference is the self-contained nature of the accommodation, not its size.
Council tax discounts for annexes
The government introduced specific council tax discounts for residential annexes in 2014 under The Council Tax (Reductions for Annexes) (England) Regulations 2013. Two rates apply:
50% reduction — annexe occupied by a relative
Where any relative of the person liable for council tax at the main dwelling occupies the annexe as their sole or main residence, the council tax on the annexe is reduced by 50%.
The definition of relative is wide and includes: spouse or civil partner, parent, child, stepchild, grandparent, grandchild, sibling, uncle, aunt, nephew, niece, and equivalent extended relationships. This covers most granny annexe and multigenerational living arrangements.
100% exemption — annexe occupied by a dependent relative
Where the annexe is occupied by a dependent relative, no council tax is payable on the annexe at all. A dependent relative is defined as a person aged 65 or over, a person who is severely mentally impaired, or a person who is substantially and permanently disabled.
This full exemption applies to the classic granny annexe scenario and provides significant savings. On a typical London annexe assessed at band A or B, the saving is £700–£1,400 per year compared with paying the full annexe rate.
Annexe as part of the main dwelling
If the annexe is not occupied as a separate home but is used as part of the main dwelling — for example as extra storage or an occasional home office used solely by the main household — the VOA may not give it a separate band at all. This depends on whether it genuinely functions as part of the main house rather than as independent accommodation.
To apply for the discount, contact your London borough council tax department directly. You will need to confirm the relationship between the annexe occupant and the main dwelling council tax payer, and confirm the annexe is the relative's sole or main residence. The discount does not apply automatically — you must apply for it.
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When Could Your Band Change While You Are Still There?
The general rule — that improvements do not change the band until sale — has a small number of exceptions where the VOA can act without a sale triggering the review.
Creating a self-contained annexe or flat
As covered above: adding self-contained accommodation creates a new dwelling and triggers an immediate separate band. This is the most common scenario where an extension changes a council tax liability immediately for the current owner.
Splitting a property into multiple dwellings
If you convert a house into two flats — each with its own separate entrance and self-contained facilities — both new dwellings receive their own council tax bands immediately. The original band is removed and replaced with two new ones.
Demolishing part of a property
Demolishing a significant part of a house — for example, pulling down and replacing an original rear extension — can trigger a review if the property is considered to have changed materially in character. In practice, demolish-and-rebuild projects that maintain the same dwelling count rarely trigger an immediate rebanding.
The VOA or a third party makes a proposal
Although rare, a neighbour, the council, or another party can make a proposal to the VOA arguing that a property is in the wrong band. The VOA is required to investigate credible proposals. This route is uncommon in practice and rarely results in band changes solely because of a home improvement.
Selling Your Home After an Extension
When you sell, the improvement indicator on your property triggers a VOA review and the buyer may end up in a higher band. This is worth understanding clearly for two reasons: it affects how you describe the property to buyers, and in some cases it can affect the sale price or buyer expectations.
How the review process works on sale
- The Land Registry notifies the VOA when a property is sold
- The VOA checks whether an improvement indicator is recorded against the property
- If an indicator exists, the VOA reviews the property using the 1991 valuation scale in its current (improved) condition
- If the reviewed value pushes the property into a higher band, the new owner is placed in that band from the date they move in
- If the review finds the current band is still correct, no change is made and the improvement indicator is removed
The practical implication for sellers: if you have made significant improvements, it is sensible to inform buyers that a council tax band review may occur. Estate agents are not legally required to disclose this, but a buyer who discovers post-sale that their council tax has increased may feel they were not given complete information. Disclosure is the cleaner approach.
For most London extensions — a standard rear or side extension, a loft conversion, or a garage conversion — the band change risk is limited. London properties already in bands E, F, or G are in broad ranges, and an extension would need to add substantial assessed value to push the property to the next level.
Challenging a Council Tax Band You Disagree With
If you believe your property has been placed in the wrong council tax band — whether because of an extension, a sale, or simply because the band was always incorrect — you have the right to challenge it. This process applies both to existing bands and to bands assigned after a review.
When you can make a formal proposal
You can make a formal proposal to the VOA in the following circumstances:
- You have been paying council tax on the property for less than six months and believe the band is wrong
- The VOA has changed your band in the last six months and you dispute the decision
- There has been a physical change to your local area that has materially reduced your property's value relative to the 1991 baseline
The challenge process: step by step
Before making a formal proposal, check what band similar properties in your street or area are in. If neighbours with the same property type and size are in a lower band, this is useful evidence. You can look up council tax bands on the VOA website at voa.service.gov.uk.
Make a formal proposal online through the VOA's website. You will need to explain why you think the band is wrong and provide evidence — comparable properties, sale price evidence, or expert valuation if available. The proposal is free to make.
The VOA reviews the proposal and decides within four months. They will either change the band and notify your council (who will adjust your bill) or confirm the existing band. If they change the band downwards, any overpayment will be refunded, potentially going back years.
If you disagree with the VOA's decision, you can appeal to the independent Valuation Tribunal within three months of receiving the VOA's response. The tribunal process is free, though you bear your own costs (such as any expert fees). Hearings are currently conducted remotely. A decision is typically issued within one month of the hearing.
Caution: A council tax band proposal can result in a band increase as well as a decrease. If the VOA reviews your property and concludes it should be in a higher band than it currently is, they can implement that change. Always research comparable evidence carefully before submitting a proposal.
Practical Advice for London Extension Projects
The council tax implications of a home extension are rarely a reason to change your plans, but they are worth understanding clearly before you start.
Standard single-storey extensions
A rear or side return extension of 15–25m² will not change your council tax band while you live in the property. The improvement indicator will be recorded but the band stays the same. On sale, a review may occur — but for most mid-range London properties already in band D or E, an extension of this scale is unlikely to push the assessed value into the next band.
Larger extensions and loft conversions
A large two-storey extension or dormer loft conversion that significantly increases the floor area and market value of the property carries a greater risk of triggering a band change on sale. Properties currently in the lower range of their band are most at risk. However, because the assessment uses 1991 values, even a £150,000 addition to a modern property's value translates to a smaller adjustment in 1991 terms.
Self-contained annexes
If you are building a self-contained annexe, budget for a separate council tax bill from the date it is completed. Apply for the 50% or 100% discount at your borough council tax department as soon as the annexe is occupied by a qualifying relative. Without the discount, an annexe in London at band A or B will add £700–£1,400 per year to your household costs.
If you are buying a property with a recent extension
Check whether an improvement indicator exists on the council tax record before exchange. You can request this through the VOA. If an indicator exists, factor in the possibility that your band may be reviewed after purchase and budget accordingly. In most cases, the risk is modest, but for high-value properties with extensive improvements it is worth getting a preliminary view from the VOA on the likely outcome.
Frequently Asked Questions
Does building a home extension increase council tax in London?
Not immediately while you continue to live in the property. The VOA records an improvement indicator but cannot legally change your council tax band because of improvements until the property is sold. At that point, the new owner may be reassessed and placed in a higher band. The exception is a self-contained annexe, which receives its own separate council tax band from the day it is capable of occupation.
What is a VOA improvement indicator and what does it mean?
An improvement indicator is a note recorded by the Valuation Office Agency (VOA) on your property's council tax record, confirming that significant building work has been carried out. It is added automatically when your local planning department or building control notifies the VOA of work at your address. It does not change your current council tax band — it only prompts a review when the property is sold.
When does a council tax band change after an extension?
For a standard extension, the band is only reviewed when the property is sold. If the improvement indicator triggers a review and the VOA determines the property would have been worth more in April 1991 in its improved state — enough to push it into a higher band — the new owner is placed in that band. Band changes while the improving owner continues to live there only occur in specific cases: creating a self-contained annexe, splitting the property into separate dwellings, or a general national revaluation.
Do I pay council tax on a granny annexe or self-contained annexe?
Yes. A self-contained annexe is treated as a separate dwelling and assigned its own council tax band, payable in addition to the council tax on the main house. However, significant discounts apply: a 50% reduction is available if any relative of the main dwelling council tax payer occupies the annexe, and a 100% exemption applies if the occupant is a dependent relative (aged 65+, severely mentally impaired, or substantially and permanently disabled). Apply directly to your borough's council tax department.
What are the council tax bands in London and how much do they cost?
London council tax bands follow the national A–H scale based on 1991 property values. The average Band D bill across London for 2025–26 is just under £2,000 per year. There is significant variation: Westminster and Wandsworth charge around £1,000–£1,050 per year for Band D, while outer London boroughs such as Kingston, Bromley, and Barnet charge over £2,200. Hackney and Lambeth sit close to the London average. Nearly all boroughs increased bills by 4.99% for 2026, adding around £100 per year to a typical bill.
Can I challenge my council tax band if I think it is wrong?
Yes. You can submit a formal proposal to the VOA if you have moved in within the last six months, if the VOA has changed your band in the last six months, or if there has been a physical change to your local area that has reduced your property's relative value. The VOA reviews proposals within four months. If they reject your proposal, you can appeal to the independent Valuation Tribunal. Important warning: a proposal can result in a band increase as well as a decrease — always research comparable evidence before submitting.
Summary
For the vast majority of London homeowners, building a home extension will not increase your council tax bill while you continue living in the property. The VOA records the improvement but cannot change the band until a sale occurs. When a sale does happen, a review may result in a higher band for the new owner — though for many properties the improvement will not be large enough to cross a band threshold.
The situation is different if you are building a self-contained annexe. That creates a new dwelling with its own band from the day it is completed. The 50% and 100% council tax discounts for relatives and dependent relatives respectively can reduce or eliminate the additional liability — but you must apply for them, they are not automatic.
Council tax is rarely the deciding factor in whether to build a London extension. The more pressing financial considerations are construction cost, planning permission, and whether the investment adds sufficient value to the property. But understanding how the system works means you will not be caught out by unexpected bills — and you can apply for the discounts you are entitled to.
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