Who is responsible for paying Council Tax in an HMO?
HMO rules and regulations are complicated enough, so throwing tax liability in there can make things seem like even more of a headache. In general, if you are letting a house or property, the tenant or tenants are responsible for paying Council Tax. However, when it comes to HMOs, this can get a bit more complicated.
In HMOs (houses in multiple occupation), the landlord is usually responsible for paying Council Tax. This applies when the property is rented out to tenants on individual agreements, such as when rooms are rented separately and tenants who do not form a single household. This is what is stated in The Council Tax (Liability for Owners) Regulations 1992:
Under Part I of the Local Government Finance Act 1992, the Council Tax becomes payable with effect from 1st April 1993. These Regulations specify classes of dwellings for which the person liable for the Council Tax is the owner rather than the occupier. The classes are–
- nursing homes and other similar homes (Class A)
- houses of religious communities (Class B)
- houses in multiple occupation (Class C)
- residences of staff who live in houses occasionally occupied by an employer (Class D)
- residences of ministers of religion (Class E).
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How do I know if my property is an HMO for tax purposes?
As mentioned above, a property is usually classed as an HMO when the property is rented out to unrelated tenants who do not form a single household but are part of separate households. This means that each tenant or couple have individual agreements and separately rented out rooms.
Within The Council Tax Regulations 1992, an HMO is defined by the following:
Class C – a dwelling inhabited by persons who do not constitute a single household, each of whom either–
(a)is a tenant of, or has a licence to occupy, part only of the dwelling; or
(b)has a licence to occupy but is not liable (whether alone or jointly with other persons) to pay rent or a licence fee in respect of the dwelling as a whole.
How Council Tax is banded and charged for HMOs
Before December 2023
Prior to December 2023, Council Tax banding was very different to how it is now. Previously, local authorities were allowed to split HMOs into individual units for Council Tax purposes through a process known as disaggregation. This meant that each separate room in an HMO would be liable for its own Council Tax.
In addition, the Council Tax liability for these separate distinct dwellinghouses was on the tenants, not the landlord. In these instances, each room would have a Band A Council Tax Valuation meaning HMO Council Tax was charged per room. Each occupant, if living alone in the room, would receive a 25% discount, but would need to pay the Council Tax themselves, as a tenant. You can see why this would have been a benefit for local councils who were making more money off of several rooms rather than one single dwelling. Often, this resulted in tenants paying more than their neighbours, which were not classified as HMOs.
After December 2023
On 1 December 2023, new regulations took effect that altered Council Tax banding for HMOs. This was introduced under The Council Tax (Chargeable Dwellings and Liability for Owners) (Amendment) (England) Regulations 2023. These rules changed how Council Tax is assessed for HMOs in England and Wales.
The new regulations introduced two major changes. First, from 1 December 2023, an HMO would be treated as a single property for Council Tax purposes. Second, it is now the landlord, not the tenants, who is responsible for paying the Council Tax on the property.
This also means that Council Tax banding will be calculated as per their valuation bands.
What do I need to do as an HMO landlord?
Any licensed HMOs should have already been contacted by the VOA at the beginning of 2024 with regards to their new Council Tax banding. However, for unlicensed HMOs (e.g. those that don’t require a licence), the onus is on the landlord to contact the VOA to challenge the current banding if your HMO is still disaggregated.
It’s also worth noting that the changes do not apply retroactively. This means that any Council Tax bills that were issued for individual units in an HMO before December 2023 still have to be paid.
What about self-contained flats?
Self-contained flats are exempt from these regulations, as the government determined they should maintain individual Council Tax responsibility. This means that in the case of a house converted into self-contained flats, each flat will have its own Council Tax band.
What about student lettings?
If your HMO is entirely occupied by students, it qualifies for exemption from Council Tax. Their educational institution can provide a certificate upon the student’s request that confirms their full time student status.
As the landlord is responsible for Council Tax, you are responsible for requesting they provide evidence or their study status so that you can apply for the exemption with the local council.
How HMO Council Tax impacts rental returns
It might be easy to assume that the liability of Council Tax being on tenants prior to 2023 was better for HMO landlords, given that the tenants were covering that cost. However, it would also make letting a room in an HMO difficult given the higher costs. Tenants may feel the squeeze of this additional Council Tax and move on quicker, making costs and management for landlords higher and more difficult in the long run.
The current regulations simplify the administrative process of disaggregation and reduce the cost of renting for tenants, meaning that landlords can offer rooms that are inclusive of Council Tax within the rental price, which makes budgeting for tenants easier.
The rent should never be shown as split between rent and council tax, which could be seen as charging for council tax, which is not permitted in HMOs. The rent should not mention any inclusion, in the same way a landlord wouldn’t usually include other running costs like building insurance or repairs.
