Council tax valuation of HMOs

Introduction

On Friday 17 February 2023 the Department for Levelling Up, Housing and Communities unexpectantly opened up a consultation in which it seeks views on the council tax valuation of Houses in Multiple Occupation (HMOs). The consultation covers the scope of the issue, the current landscape for the valuation of HMOs, and the government’s proposals for achieving these objectives. The proposals relate to England only and are open until 31 March 2023 (6 weeks) with 14 questions being asked in total.

It is clear that the Government wants to “provide greater certainty and consistency in the way that accommodation in the HMO sector is banded for council tax and to ensure that HMOs are banded as one property and have one council tax band, other than in exceptional circumstances”, with the Governments overall objective to ensure HMOs are valued as a single dwelling other than in exceptional circumstances. This would help to ensure that liability for council tax remains with the HMO landlord, and their tenants do not become subject to individual council tax bills. The consultation suggests alternative approaches through amendments to existing regulations.

Current Framework

For HMOs, the landlord would generally be liable for council tax (although they may factor in the cost of council tax as part of the rental agreement). Where each unit within an HMO merits its own council tax band, each tenant will be liable for council tax (rather than the landlord).

In carrying out its valuation work, the VOA (Valuation Office Agency) considers what is a “dwelling” and is therefore liable for council tax. In broad terms, a dwelling is a domestic property that would have constituted a separate hereditament. If the test for a hereditament is satisfied, then each unit will be considered a “dwelling” and capable of having its own council tax band. This means each unit could have a separate council tax band even if it is not self-contained and shares some facilities with others. The starting point of valuing every ‘dwelling’ is that each separately occupied part qualifies with its own band, whether or not it is self-contained.

Article 4 of the Council Tax (Chargeable Dwellings) Order 1992 gives the Listing Officer discretion in certain circumstances to treat a property that would otherwise form multiple dwellings as a single dwelling. The VOA can, and does, decide to amalgamate the bands into one single council tax band. In exercising their discretion, the listing officer is required to have regard to all the circumstances of the case, including the extent, if any, to which the parts of the property separately occupied have been structurally altered. Examples of these factors include:

• Actual occupation: whether each tenant was in actual occupation of the property.

• Beneficial occupation: whether each tenant benefitted from use of the property and the use of the communal area.

• Exclusive occupation: whether each tenant had an exclusive right of occupation to their room and no other person was entitled to occupy their room.

• Occupation is not too transient a period: there must be a necessary degree of permanence. Consideration should be given not only to the length of occupation but also to its character and nature.

Making such a decision to treat more than one unit of separate living accommodation as a single dwelling is known as ‘aggregation’. There are several factors to consider when deciding whether to aggregate or not and examples include:

• number of letting rooms – large HMO needs to be registered if there are 5 or more occupiers

• structural alterations

• adaptations

• previous use / converted or adapted?

• number of letting rooms with “private” cooking facilities

• number of letting rooms with “private” washing/WC facilities

• amount of communal space compared to the number of bedrooms

• number of shared kitchens

• number of shared bathrooms

• contractual letting arrangement/s.

Proposed Changes

The government is keen to explore the extent to which the council tax valuation of HMOs is an issue and, if so, the appropriate approach to addressing this, with the intention that HMOs are banded as one property and have one council tax band, other than in exceptional circumstances.

The government is aware of concerns that a consequence of some HMO properties not being aggregated for council tax valuation purposes is that tenants, who had not previously been liable for council tax, are now becoming liable and receiving bills significantly in excess of any sums they may have been charged had the liability remained with the landlord.

The decision on the valuation of properties rests with the VOA, reflecting the relevant legislation and case law. However, the government considers that greater consistency needs to be delivered in the outcomes of HMOs when it comes to council tax banding. Subject to the outcome of this consultation, the government is minded to introduce changes to the relevant regulations to ensure that, other than in exceptional circumstances, HMO properties should have one council tax band.

One of the proposed changes that could apply relate to Sections 254 to 259 of the Housing Act 2004 in which certain HMO tests are required to be met:

• the standard test

• the self-contained flat test

• the converted building test; or

• if an HMO declaration is in force under section 255 of the 2004 Act; or

• it is a converted block of flats to which section 257 applies (though the government is not inclined to include properties covered by section 257 as this could mean that a converted block of flats with self-contained flats inside may only have one council tax band for the building).

This certainly would ensure consistency across the HMO sector by aligning the definition with existing housing legislation.

Schedule 14 of the Act then sets out a number of exemptions from that Act’s definition of HMOs. If the government were to use the definition of HMOs as set out in this Act, it would want to reflect on whether the exemptions in Schedule 14 should apply also to the council tax banding of HMOs.

Implementation

If the government decides to take forward changes to the valuation of HMO properties, it proposes that HMO landlords should be able to make a proposal to alter their band from the VOA once any change has been implemented. This will open up a route for HMO landlords to request an appeal to the Valuation Tribunal.

Further Reading

The full consultation can be found on the Gov.uk website.