There has recently been an increasing trend of HMO landlords being charged Council Tax separately for every room in their HMO instead of the entire home. This is becoming a massive problem for a lot of people across the country!
Naturally, this is causing a great deal of stress and anxiety but, take a deep breath. In this blog post, we’ll cover what exactly is going on with Council Tax on HMOs and how this will impact landlords, and I’ll also give my best advice for how to deal with this moving forward.
What’s Happening with Council Tax on HMOs?
The Valuation Office Agency (VOA) is a government body part of HMRC that values properties for the purpose of Council Tax in England and Wales. The agency has been increasingly disaggregating Council Tax bands so individual bedrooms in some HMOs are given their own band and Council Tax bill.
This means each HMO room is treated as a separate dwelling and is being issued its own individual Council Tax bill. The VOA is increasingly using ensuites as a way to justify these re-bandings.
The rules by the VOA state that the rooms in HMO properties can be split for Council Tax purposes where each of the rooms or floors have facilities like a kitchenette or bathroom. However, there are some reports that this is happening even with rooms that don’t have their own ensuites.
Recently, the VOA stated: “HMOs are assessed entirely on the individual characteristics and adaptations of each dwelling. The amount of tax any assessment will yield is not a consideration.”
Many professionals in the industry are describing this as a “stealth tax rise” and a way for local authorities to earn more income during challenging economic times. And overall, there is a great deal of inconsistency with these rules being enforced differently across the country.
What Does This Mean for HMO Landlords?
Currently, there are about 500,000 homes in England and Wales that are classified as HMOs. In a recent article, Property Investor Post has claimed hundreds of HMO landlords are having their rooms re-banded and are being charged Council Tax separately for each room.
It seems to vary on location with re-evaluations largely taking place in areas with the most HMO properties, according to an investigation by The Daily Telegraph.
Landlords need to be aware that more and more HMO owners are being charged Council Tax separately for every unit, causing Council Tax bills to skyrocket. This is leading to tax rises of 300% for some HMO property owners, says Landlord Today.
Many HMO owners pay Council Tax, in addition to other bills, on behalf of tenants, who are then given a single all-inclusive rent every month. This means landlords either need to take on the cost themselves or pass it on to tenants through higher rents.
However, similar properties within close proximity have even been classified differently, making it hard for some landlords affected by this to maintain competitive rents.
4 Tips for How to Navigate Potential Council Tax Re-banding
I personally feel this is unlikely to be enforced nationally at short notice as such a change would need to come from the national government. However, it is happening more and more at a local level, and the criteria vary from one location to another.
With more HMO owners facing these Council Tax band changes, it’s important to start preparing now. Here are four of our top tips for how HMO landlords can prepare and find ways to navigate re-banding.
1. Have a HMO Property Law Expert on Your Team
A property law expert specialising in HMOs can help you understand the ins and outs of laws impacting your portfolio. Having this kind of professional on your team can allow you to get advice on Council Tax and help you understand how changes could affect your portfolio or HMO properties you’re considering investing in.
2. Do Your Due Diligence
At the minute, the best advice I can give you is to do your due diligence to see if this is something you could be targeted by locally! Is this happening to other HMO landlords in your area or where you’re considering investing? Consider what features the VOA is using to justify re-banding locally.
Additionally, look through the ‘Banding of houses in multiple occupation’ section of the VOA’s guidance on how domestic properties are assessed for Council Tax bands. The government says this is how the agency decides whether to split up a property into separate units.
3. Think About What You Would Do if This Was Enforced on You
Even if your location isn’t currently being targeted by this, you need to be aware that it could at some point be enforced on you. We will likely see more of this, so you need to start thinking about how you will navigate this moving forward. Start making a plan for how you could safeguard your HMO properties.
4. Prepare for HMO Changes
More landlords will likely see their HMOs be disaggregated so that individual rooms will have their own Council Tax band. It’s impossible to know if these decisions will eventually get overturned. And more changes impacting HMO landlords are expected in the future, so you need to stay on top of these, prepare ahead of time, and future proof your portfolio where you can.
If you’d like to discuss this further with fellow HMO investors, join the conversation over on The HMO Community Facebook Group. Find out what landlords are doing about Council Tax banding by the room and the issues they’re having with it. And for more helpful updates and insights on the HMO industry, become a member of The HMO Roadmap today!
About the Author:
Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind and Smart Property, a specialist HMO property investment and management company. He writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!