Are you ok with optional cookies ?

They let us give you a better experience, improve our products, and keep our costs down. We won't turn them on until you accept. Learn more in our cookie policy.

Council Tax and HMO in the UK: A Comprehensive Guide

Council Tax and HMO in the UK: A Comprehensive Guide

What is an HMO?

A House in Multiple Occupation, or HMO, is a house where three or more unrelated people live together and share common areas like a bathroom and kitchen. Larger HMOs in England and Wales that accommodate five or more individuals from various homes are required to obtain a licence. Licences are valid for up to five years and must be renewed. A "fit and proper" manager, compliance with safety regulations, and suitability for the inhabitants are all prerequisites for obtaining a licence. Failure to obtain a licence can result in substantial fines, including the possibility of an unlimited fine.

What is Council Tax?

A local tax called council tax is used to pay for the services that local councils deliver. It includes a range of city services like trash collection, street lighting, street cleaning, road maintenance, and vital community programmes like "Meals on Wheels." It also helps to finance services provided by the Greater London Authority, which includes the police, fire department, and other citywide agencies.

The Council Tax on HMOs

When a home is designated as a House in Multiple Occupation (HMO) for the purposes of this particular tax, tenants are exempt from paying council tax. Although there is frequently overlap, the Housing Act of 2004's definition and the determination of an HMO for Council Tax purposes may differ.

For Council Tax reasons, bedsits, homeless hostels, and nurseries are examples of HMOs. If a property was built or later altered to accommodate numerous families, even with just one occupant, it can still be considered an HMO if the renter or licensee is only allowed to inhabit a portion of the property.

Determining HMO Status for Council Tax

The Council Tax (Liability for Owners) Regulations of 1992 outline two tests that determine whether a home qualifies as an HMO for Council Tax purposes. It's enough to pass even one of these tests.

Construction or Conversion Test

This test applies if more than one household occupied the property when it was first constructed or converted. Features such as extra cabinets, separate bedroom lock fittings, and private amenities for tenants like kitchenettes, bathrooms, or showers could be signs of this. In these situations, the house is probably exempt from council tax because it is an HMO, and renters are not responsible for paying the tax.

Occupation Test

When a property is inhabited by one or more people, each of whom is a tenant or has a licence to occupy a specific portion of the property, the second condition is met. Although it may be stated in the tenancy or licence agreement, the tenants are not always required to pay rent. If the occupants are only accountable for a portion of the home's rent or have access to shared amenities but not all of the bedrooms, the property may qualify as an HMO for Council Tax purposes, exempting the tenants from paying the tax.

HMOs and Council Tax Bands

The Valuation Office Agency (VOA) assesses your property's worth, which is used to calculate council tax payments. The estimated property value as of April 1991 determines which of the eight council tax bands the VOA places a property in.

An illustration of various bands and the corresponding tax values may be found below. Find Your Band here.

Council Tax and HMOs in the UK: A Comprehensive Guide

Depending on the unique features of the property, council tax banding for HMOs might be a complicated procedure. When it comes to Council Tax banding for HMOs, the government has two options in mind:

Option 1: Modifying the Council Tax (Chargeable Dwellings) Order 1992 is one strategy. This would necessitate listing officials treating an HMO as a single property when evaluating it. As a result, HMOs would be regarded as a single property for Council Tax purposes, with the exception of rare situations in which the HMO includes independent living quarters.

Option 2: As an alternative, the government might amend the Council Tax (Chargeable Dwellings) Order 1992 by designating HMOs as single dwellings under Section 3(5) of the Local Government Finance Act 1992. In a similar vein, this strategy would result in a single Council Tax category for HMOs, with certain limitations.

Local governments compute council tax on an individual basis for HMOs. Here are some instances of how HMOs' Council Tax is calculated:

Little or No Adaptations: A single Council Tax band is sometimes applied to the entire house when tenants share common rooms and there are few to no modifications to the HMO, such as locks on bedroom doors.

Modifications to Individual Rooms: Even though some amenities are shared, HMOs with modified individual rooms—such as adding kitchenettes or en suite bathrooms—may be granted distinct Council Tax bands for each room. For landlords, the Valuation Office Agency (VOA) can be a bit unpredictable because of its inconsistent methodology.

Purpose-Built HMOs: In most cases, council tax purposes do not mix purpose-built HMOs. For every interior unit on the property, an assessment is done.

Please be aware that the VOA's assessment of Council Tax bands varies for various HMO properties, making this a complex area of law. It is therefore best to consult an expert while working on HMO projects.

Council Tax Rates for 2023–24 and Precept Details

Local authorities in England have set the average Band D council tax at £2,065 for the fiscal year 2023–2024. This represents an increase of £99, or 5.1%, above the £1,966 number from 2022–2023. It is crucial to remember that this sum includes all precepts, including parish and adult social care precepts.

Key Highlights:

  1. When calculating council tax rates in 2023–24, 151 of the 153 adult social care authorities are using all or part of their adult social care precept flexibility. The highest amount of flexibility permitted is 2%, which adds £30 to the average Band D council tax payment.
  2. In London, Band D properties will pay an average council tax of £1,789, an increase of £105 (6.2%) over the previous year. It will average £2,059 (+£99 or 5.1%) in metropolitan regions, £2,139 (+£103 or 5.0%) in unitary areas, and £2,134 (+£94 or 5.0%) in shire areas.
  3. The entire amount of council tax required in 2023–2024 is £38.7 billion. Of this, the adult social care precept will raise £561 million (1.4%) and parish precepts will raise £708 million (1.8%).
  4. For areas with parishes levying precepts, there has been an average Band D parish precept increase of 6.1% for the years 2023–24.
  5. During this time, the average council tax per residence will be £1,578.

Who Pays Council Tax in an HMO?

The order of responsibility used to calculate Council Tax liability is specific. This hierarchy must be followed in order to determine who is responsible for a property:

  1. The occupant of the building who is subject to an assured shorthold tenancy or lease. As long as their lease isn't shorter than another tenant's, this is applicable.
  2. The local who owns the property as a freeholder, in whole or in part.
  3. Resident who has a written permit to occupy all or a portion of the home.
  4. A resident who occupies all or a portion of the dwelling and is a Rent Act statutory tenant.
  5. Everyone else living there, even squatters.
  6. A non-resident "owner" who has maintained a minimum six-month interest in the asset.
  7. An individual who is not a resident but holds a longer interest in the property than another non-resident person

In Summary:

Both landlords and tenants in the UK must take into account the Council Tax assessment of shared housing units. It's critical to understand your responsibilities because larger HMOs are subject to particular rules, and there is a hierarchy of liability that establishes who is accountable for payment. The value of the property as of April 1991 is used to calculate Council Tax bands. The valuation process for HMOs can be complicated because it depends on things like self-contained units and modifications. Know more about HMO fractional ownership and decide if this is the right choice for your next real estate investment.

It is essential to comprehend these rules in order to have a seamless and legal tenancy experience. It is imperative for both tenants and landlords to be aware of their Council Tax responsibilities.


Our Social Media
  • 63
  • 453
  • 28
  • 25
  • 912
  • 1
Latest Blogs

London Real Estate Prices: Potential Decline or Crash?

City & Country Focus 14th July 2023 Pooja Sharma

Fractional Investing A Top Property Investment Strategy?

Fractional Ownership 11th September 2023 Mariyam Zaidi

Crypto Real Estate - A New Future For Investing?

Fractional Ownership 9th September 2022 Danyaal Rahman