HMO Council Tax Comprehensive Guide: What to Expect

Houses in Multiple Occupation have grown in popularity as an economical option for low-income tenants. They’re also beneficial for landlords, helping them make the most of their properties.

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However, HMOs are subject to specific council tax regulations. If tenants or landlords aren’t educated on these laws, they might end up with unexpected bills.

This HMO council tax guide is your first step into exploring this side of the UK property market.

Key Takeaways

Houses in Multiple Occupation: What Qualifies for Council Tax Purposes

Liability: Who Pays the Council Tax in an HMO?

How Are HMOs Banded for Council Tax?

Are There Any HMO Council Tax Exemptions?

Houses in Multiple Occupation: What Qualifies for Council Tax Purposes

To determine if a dwelling falls under HMO council tax rules, you must properly define what a House in Multiple Occupation is. A simple variation to your rented property’s setup may change its definition entirely.

An HMO is a property rented out by three or more people who aren’t related to each other (they can’t be a family). These individuals typically share facilities like a kitchen or bathroom.

Yet, HMOs still need to be banded by the Valuation Office Agency (VOA). In most scenarios, the whole property will be considered a single dwelling for council tax purposes. But based on the VOA classifications, the house might be banded separately.

Liability: Who Pays the Council Tax in an HMO?

Unlike regular rental setups, where tenants are responsible for council tax, HMOs need a closer look. Based on tenant agreements and how the house is divided, the landlord or tenants might be liable for this tax:

A Single Joint Tenancy

Sometimes, more than three households (or people) will rent an entire dwelling under a single joint tenancy agreement. Student houses are a good example of such a setup.

Here, these individuals are required by law to share payment for the council tax bill instead of the landlord.

Bedsits

In case of bedsits or the rent of individual rooms with shared facilities, the landlord is the one liable for the tax. This is because there are individual tenancy agreements instead of a joint contract.

Separate Tenancy Agreements

Same as the previous case, renting individual rooms (even without shared facilities) means the liable party is the landlord. The council tax is calculated for the entire dwelling, and the landlord pays this one bill.

Tenants and landlords need to educate themselves on tenancy structures to get their rights. Registering with a property education company can go a long way in achieving that goal.

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How Are HMOs Banded for Council Tax?

HMO banding means the classification of HMOs by the Valuation Office Agency for council tax purposes.

Normally, the VOA bands HMOs as one dwelling; as a result, only one council tax bill will be issued. But again, special house setups can change that rule, and here are a few examples of how:

Separate rooms with their own cooking spaces, bathroom, and entrance are self-contained units. The absence of shared accommodations means each room (or unit) has an individual band. Then, each band will get its own council tax bill.

Of course, multiple self-contained units as separate bands will raise the overall council tax bill for the entire building. Properties converted from a single dwelling status (with shared accommodations) to separate units get higher bills.

What if the Banding Is Wrong?

As a landlord, your responsibility (and right) is to ensure the correct banding of your property. Wrong banding could place unjustified expenses on you or your tenants, which could lead to future problems.

Unfortunately, HMO banding errors are common, and here’s why:

A house that should be considered a single dwelling may have been mistakenly banded as separate units. Likewise, many HMOs were classified before 1991 and could’ve been converted afterwards, which needs updating.

How do you minimise such banding mistakes?

Check how many bands are assigned to your address (you can do that using several online tools). If your dwelling has several bands when it’s not supposed to (no self-contained units), the next step is to challenge.

Start by visiting the Council Tax band section of the official UK government website. Read about the requirements and fill in the band challenge form, then you can either send it by email or by post to the provided addresses.

Are There Any HMO Council Tax Exemptions?

Yes. Some relevant HMO council tax exemptions include:

Empty Property Discount

Part of the natural cycle of tenancy is a duration of vacancy between tenancies, which might be 100% exempt from the HMO council tax. If not, it might still be subject to an empty property discount, depending on council rules.

As a landlord, you can expect a full exemption if the property is vacant for one to three months. Longer than that, you might go back to being charged the full tax amount.

Student Exemptions

If your HMO property is rented out by full-time students, it’ll be 100% exempt from council tax as well. However, the liable party should provide the local council with the right student certificates to apply.

Beware; all residents must be students. The tax bill might have to be paid in full if not, although there might still be a minimal per-person discount.

Unsure if your residence is fully or partially exempt from council tax? You can go back to your local council’s website to check.

Wrap-Up: Get the Right Property Education

Conversations about the HMO council tax can be confusing for new landlords or tenants. Since HMOs are different from regular renting schemes, their council tax rules need much explaining to both parties.

Hopefully, this HMO council tax guide has answered all of your questions about who is liable and in what cases. It has also addressed HMO banding scenarios, wrong banding issues, and how to limit them.

Do you have further questions about HMO taxes or other parts of the volatile UK property market? Get in touch with a leading property education company and take advantage of our property training events and informative property resources.