HMOs and council tax
Landlords are increasingly reporting that their houses in multiple occupation are being targeted for disaggregation into multiple separate council tax bands by the Valuation Office Agency (VOA).
Under the council tax legislation, the VOA has long held powers to disaggregate properties into multiple separate units for council tax. Where this happens, the property is split into multiple band A properties, increasing the total amount of council tax paid on the property by a significant amount.
While this has been possible for decades it has been relatively rare. The VOA is a reactive organisation and typically only acts on reports from a local authority so most properties that could be disaggregated are not.
Previous surveys by the NRLA found that around 1% of landlords had experienced disaggregation. A significantly smaller percentage than the number of HMO properties.
However, it is increasingly common for some local authorities to contact the VOA in the event of a landlord making a planning or licensing application for their HMO.
In the event that the VOA does decide to disaggregate a property, landlords will generally find it difficult to successfully appeal the decision.
Tribunal decisions have made it clear that disaggregation can be appropriate if a room only tenancy exists, even if the property is not fully self-contained; a common set up for landlords who want to comply with their licensing or HMO management obligations.
This problem is largely caused by the fact that the council tax legislation predates most of the other legislation around HMOs. From 2004 onwards, legislation recognises that an HMO is one dwelling shared by multiple households and is written with that in mind, typically increasing safety requirements or requiring adaptations for use by separate households.
The penalties for non-compliance with this legislation are steep, with landlords facing civil penalties of up to £30,000 per breach of the HMO regulations. This incentivises landlords to provide room only tenancies so they can easily access the common parts and manage their HMO appropriately.
Unfortunately, in these cases, should the VOA investigate, the council tax legislation will default to splitting the property into multiple separate units for council tax. Often this can also lead to lower income tenants losing out, as the council tax bill for the room will be their responsibility unless the tenancy has the landlord paying the bills.
This legislative conflict leads to situations where landlords can be both responsible for licensing one HMO but either they or the tenants are responsible for paying four or five separate council tax bills.
What is the NRLA doing about this?
The NRLA does not believe this current arrangement is fair to landlords or tenants and we have written to both the Government and the Law Commission asking them to look at this issue.
In our submission, we recommended that the council tax legislation be amended so that the property would only qualify for disaggregation if the property was made up of multiple, entirely self-contained units. This approach would be fairer to both landlords and tenants and give landlords certainty on their expenses.
How can you help?
As we move on with this work, the NRLA is looking to collect case studies of landlords affected by this. Please get in touch with us if this issue has affected you to tell us about how you have been affected and which local authority your property is based in.
If you want to share your story, contact us by using the form below.
