Landlords hit with soaring council tax bills as ‘stealth tax’ sees homes reclassified

NimbleFins explains how landlords could be hit with soaring council tax bills as ‘stealth tax’ sees homes reclassified.
Landlord calculating profits

LANDLORDS are being hit with a stealth council tax which is sending bills surging, in some cases by four times as much.

Large homes which are rented out by room are being reclassified so councils can treat them as multiple smaller properties.

There are 500,000 houses of multiple occupancy (HMO) in the UK.

And while councils don't get to decide the band a house is put into, they can send them to the Valuation Office Agency (which is part of HM Revenue and Customs) to be re-evaluated.

Cash-strapped councils are increasingly referring properties, with "cases shooting up" in areas such as east and west London, Coventry, Birmingham and Portsmouth, according to consultancy organisation Council Tax Legal Services.

Daryn Brewer, 43, saw the council tax for his six bedroom property in Portsmouth quadruple from £1,821 to £7,287 after it was rebanded as six separate properties.

He told the Telegraph: "This looks like the poll tax. It's an absolute mess."

It is the responsibility of a landlord to pay the council tax for HMOs, meaning they either take the hit themselves, or pass on the cost to renters, driving up costs.

Another landlord in Portsmouth, Calli Robertson, also saw her council tax almost quadruple from £1,300 per year to £4,890 on her five-bedroom property. She said three of the rooms were not ensuite and none had kitchens.

Penny Mordaunt, Portsmouth North MP, tweeted: “Current confusion from Valuation Office is resulting in sensible and sustainable developments being stifled, council tax not being paid either by tenants or landlords and there’s big inconsistencies across HMG on what is a ‘dwelling’.”

Wendy Whittaker-Large, who has started a campaign to stop the rebanding of HMOs, said:

"Councils have taken it upon themselves to consider whether these individuals who are living pretty separate lives should take responsibility for a share of the costs of bins, road repairs, lighting and all the council services they have access to. And therefore there has been a gradual increase in the number of HMOs that are being developed where the council has then reported them to the Valuation Office and suggested they are rebanded.

"I get cross when I feel the Government is starting to chip away at business and stop us from making a good living from this particular asset class. I think it's unfair and I think they'll come to regret it.

"It doesn't matter if they have ensuites or kitchenettes. I have seen properties rebanded when they've just been a bedroom. They don't even have to have furniture in them."

One landlord in Hertfordshire was forced to declare bankruptcy after his two 12-bedroom properties were rebanded, she said.

Ms Whittaker-Large found that for rooms to have council tax applied to them separately, the law states they must:

  • 1. Be actual occupation
  • 2. Be beneficial occupation
  • 3. Be exclusive occupation
  • 4. Be a non-transient occupation.

She is working with her clients to challenge rebandings.

A statement from the Valuation Office Agency, said: "HMOs are assessed entirely on the individual characteristics and adaptations of each dwelling.

"The amount of tax any assessment will yield is not a consideration."

It's worth knowing that there are some exemptions for council tax—students and unemployed are the main ones, but there are others too.

There is a petition to urge the Government to scrap council tax being charged on individual rooms.

For information on how to challenge your council tax band, click here.  

Erin Yurday

Erin Yurday is the Founder and Editor of NimbleFins. Prior to NimbleFins, she worked as an investment professional and as the finance expert in Stanford University's Graduate School of Business case writing team. Read more on LinkedIn.


{"endpoint":"\/newsletter\/subscribe","style":"blue","title":"Keep up with our news and analysis.","version":"sidebar"}