A block of flats. Council tax shake-up and the impact on landlords and tenants

Council tax shake-up for HMOs and the impact on landlords and tenants

Stephen Small, Partner in the Russell-Cooke Solicitors, property litigation team. Anna Newbury, Trainee in the Russell-Cooke Solicitors, property litigation team.
Multiple Authors
3 min Read
Stephen Small, Anna Newbury

Partner Stephen Small and trainee Anna Newbury have co-written an article detailing the changes to the payment of council tax for HMO properties in England and Wales and the impact on landlords and tenants.

On 1 December 2023, The Council Tax (Chargeable Dwellings and Liability for Owners) (Amendment) (England) Regulations 2023 came into force. The regulations have changed the way in which council tax is calculated for house in multiple occupancy (HMO) properties in England and Wales.

Prior to the regulations, an HMO could be split into single units by the local authority for the purposes of calculating council tax through a process called disaggregation. As a result each separate room in an HMO could be liable for paying council tax.

The regulations make two key changes. Firstly, from 1 December 2023 an HMO will be considered as a single dwelling for the purposes of council tax. Secondly, the owner of an HMO, and not the residents, is responsible for paying the council tax. 

Self-contained flats are excluded from the new regulations as it is considered by the government that such flats should have their own council tax liability.

How will the regulations impact landlords?

From now on, each HMO will only have one council tax bill for the entire property. However, the landlord is now responsible for paying the bill and therefore they may wish to consider varying the rent on their properties to account for this. 

Some landlords may however be reluctant to increase the rent to cover the cost of the council tax. Some may see increasing the headline rent they charge for their property as putting them at a competitive disadvantage compared to non-HMO properties where rents will be quoted in property listings net of any council tax liability. Others will be concerned that council tax is liable to be increased in the middle of the term of a tenancy and that any increase will impact the profit the landlord can make on the letting. 

The Tenant Fees Act 2019 makes provision for tenants to be required to pay council tax as a separate permitted payment, so in theory landlords might be able to recover any costs incurred in paying council tax by way of a charge that is separate from the rent. However, the Act makes specific reference to tenants paying a ‘billing authority’ and not the landlord. It therefore seems possible that tenants may challenge any request by their landlord for reimbursement of council tax costs. 

Landlords should consider reviewing their standard tenancy agreements to ensure they are as well-equipped as possible to deal with the changes that have come into force.  

Landlords of licensed HMOs that are currently disaggregated do not need to do anything at this stage to trigger the required change in billing processes. The Valuation Office Agency VOA has written to local authorities asking for details of all HMOs under each authority and will then contact the relevant landlords. Landlords of HMOs that do not require a licence may however need to contact the VOA to request that their properties be re-banded. 

How will the regulations impact tenants?

The new regulations are in some ways good news for tenants. Disaggregation meant that tenants were often paying higher rates of council tax as, for instance, tenants in shared housing were responsible for paying council tax bills calculated per room rather than per property. This meant that tenants were often paying higher rates than neighbouring properties which were not an HMO. 

The new regulations should ensure that council tax bills for tenants in HMOs are calculated in a more consistent way. However, as the landlord is now responsible for paying the council tax bill, tenants can expect to see rent increases in order for landlords to recoup that loss.

Stephen Small is a partner in the property litigation team. He acts for both landlords and tenants and advises on all aspects of commercial, residential and mixed use property related disputes.

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Briefings Property litigation council tax The Council Tax (Chargeable Dwellings and Liability for Owners) (Amendment) (England) Regulations 2023 impact on landlords impact on tenants HMO House in Multiple Occupation (HMO) disaggregation process single dwelling owner responsibility self-contained flats rent variations Tenant Fees Act 2019 billing authority tenancy agreements licensed HMOs Valuation Office Agency (VOA) VOA