Family members of those with a 'severe mental impairment' have been reclaiming £1,000s in council tax overpayments, after a MoneySavingExpert.com investigation revealed thousands of households may be paying too much tax.

We recently ran an article to raise awareness of a little-known tax break for people living – or who have lived – with someone medically certified as having a permanent condition that affects their intelligence and social functioning, eg, Alzheimer's or Parkinson's, otherwise known as a 'severe mental impairment' (SMI).

If you live with someone who is deemed to be severely mentally impaired your household should be eligible for a 25% council tax discount, as the person you live with is 'disregarded for council tax purposes' in England, Scotland and Wales – in a similar way that students are, for example.

Normally if there's only one person living in a home, you get a 25% discount on your council tax. But if you live with someone with an SMI and no other adults – or only adults who are disregarded for council tax purposes – you can also claim 25% off.

Crucially, you can reclaim retrospectively too – meaning you may be able to claw back £1,000s in overpayments made in previous years.

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'Thanks to MSE we can now afford some additional help'

We've heard from scores of MoneySavers who have contacted their local authorities in light of our coverage of the tax cut for SMI households. Many have already bagged refunds of as much as £12,000.

They include Andy, who got in touch to tell us: "My father-in-law suffered from Parkinson's disease for 12 years prior to his untimely passing just before Christmas last year. We were unaware until a recent [MSE] article that my mother-in-law should not have been paying the full amount of council tax.

"Since finding this out she has been successful in getting £1,400 back from the council. We as a family would like to thank Martin and all at MSE for this valuable information, and would encourage anyone in the same situation to get a claim form from their local council. After all, what do they have to lose?"

And Bob from St Helens emailed: "My wife [has had] two strokes since 2009. We applied to the council and got a reduction in council tax and [an] over £2,000 refund. Can't thank you enough. Also, I know of others in [the] same boat so I'm helping them with [the] same."

Lorraine, who was successful in securing a hefty refund for her mum after reading our article, told us: "Received a refund of £3,100 for council tax for my mum who was diagnosed [with dementia] nearly three years ago. She is receiving attendance allowance but no other benefits. Thanks to your article we can now afford some additional help – no other agency ever suggested that this was available."

The biggest SMI council tax reclaim we've heard of so far (that's come as a direct result of our initial story) is from MoneySaver Katherine Whitfield, who emailed: "I had no idea that this was an option until I read one of your emails; thanks to you guys I've managed to get a refund of over £5,700 for my nan who has dementia. Thank you so much."

However, MSE founder Martin Lewis was informed of an even more impressive council tax reclaim - a whopping £12,000 - when he appeared on Good Morning Britain last week:

'More should be done by councils to raise awareness'

Regardless of the amount people have been able to reclaim, the overriding reaction from successful claimants has been surprise that nobody had brought this tax break to their attention sooner.

Iris, whose husband Barry has a PSP, a neurological condition similar to Parkinson's, was able to reclaim more than £1,000 from South Bucks District Council. She feels more should be done by local authorities to raise awareness across the country.

She told us: "I would like to thank MSE for bringing to our attention information relating to discounts of council tax charges for mental impairment. However, I feel as though more should be done to raise awareness by the councils themselves – I wouldn't be surprised if lots of eligible people all over the country were paying over the odds on their [council] tax."

Alice, who managed to reclaim almost £2,000 for her mum and dad, added: "My mum was diagnosed in September 2009 with dementia and no one from social work, the GP, community mental health, or the Alzheimer's [charity] had advised of this.

"Just wanted to thank you for raising awareness – I have told a few families I know with the same circumstances who unfortunately were also unaware of this reduction."

Families of severely mentally impaired people reclaim £1,000s from councils, thanks to MSE
You can reclaim council tax retrospectively – meaning you may be able to claw back £1,000s in overpayments

Who's eligible for the SMI discount?

Both of the following must apply for someone to qualify for an SMI council tax discount:

  1. They've been medically certified as being severely mentally impaired. For example, if they have dementia, Parkinson's, severe learning difficulties or have had a stroke.

  2. They're eligible for at least one of the following benefits: (these aren't all means-tested, and in most cases they don't actually need to claim any benefits to get the discount).

    - Attendance allowance under Sec 64 of the Social Security Contributions & Benefits Act
    - Severe disablement allowance
    - The highest or middle rate of the care component of a disability living allowance
    - The daily living component of personal independence payment
    - An increase in the rate of your disablement pension
    - Disabled persons tax credit
    - Incapacity benefit
    - Employment and support allowance
    - Unemployability allowance or supplement
    - Constant attendance allowance or income support including a disability premium

How do I claim for a reduction or reclaim if I've overpaid in the past?

The process for making a claim varies by area, so you'll need to check your local authority's procedure. Here are the basics: either you or the person with an SMI can make the claim.

  • You'll need a doctor's diagnosis. A registered medical practitioner must have diagnosed a condition causing severe mental impairment. In some cases you'll need to attach a written diagnosis to your claim – in others you just give your doctor's details and they'll be contacted for confirmation.
  • Get a claim form to apply for a reduction in future. You'll need to contact your local authority for a claim form to register for a council tax discount (find contact details via the Government's 'Apply for Council Tax Reduction' service). Fill this in – you may be asked to attach some supporting evidence, such as the doctor's diagnosis or evidence of receipt of relevant benefits.
  • If the person with a mental impairment doesn't claim a benefit, you may need a letter from the Department for Work and Pensions (DWP). If the person you're living with qualifies for a benefit but for whatever reason doesn't claim it (they should), in some cases councils will ask you to get a letter of confirmation from the DWP saying you're eligible.
  • Apply for a backdated discount separately. If you're making a retrospective claim, you'll need to write to your local authority explaining the circumstances – you'll need to do this separately even if you're claiming for a reduction going forward as well, though you can attach your letter to the claim form.

    You don't need to explain why you didn't apply for a reduction earlier, but you will need to prove the criteria for a discount applied at the relevant time in the past. We've heard from MoneySavers who have moved home over the years who have managed to reclaim overpayments from multiple councils.

    It's worth noting that different councils seem to have varying interpretations of the reclaim process, but the most common way of calculating when the reclaim should be backdated to seems to be based on when the person with the SMI first started receiving a qualifying benefit.
  • If you live with someone with a mental impairment who's since died, you can still claim. The process is the same – you should be able to claw back overpayments for the period when the person with the impairment lived with you. You'll still need proof of the person's condition though, such as a doctor's letter.
  • In Northern Ireland it works differently. There's a rates system instead of council tax, meaning that every property is valued individually. The only roughly similar discount is the disabled person's allowance, which gives a 25% discount on rates for homes where a disabled person lives and the property has been adapted to suit their needs. See full info on the NIdirect website.

How many people are missing out on the discount?

The Alzheimer's Society, Stroke Association, and Parkinson's UK – which has produced a dedicated booklet on the topic – all told us they believe a large number of people living with someone with a severe mental impairment are failing to claim the council tax discount.

The Department for Communities and Local Government and the Local Government Association say there are no official figures – however, based on the best available estimates of the number of people affected, it appears tens of thousands (or even hundreds of thousands) could be eligible to reclaim.

The Alzheimer's Society says there were 850,000 people with dementia in the UK last year, while there are about 127,000 people with Parkinson's and more than 1.2 million stroke survivors – and while it's not known how many of these people are eligible for a council tax reduction, many with other conditions will be as well.

By contrast, as of September last year, just 205,084 households were registered as qualifying for a 25% council tax discount – and that figure includes ALL categories of disregarded people (such as student nurses and apprentices – see the full list), not just those with a severe mental impairment.

If you're successful in applying for a council tax reduction or have managed to reclaim overpayments, let us know by emailing news@moneysavingexpert.com.