New Council Tax Bandings Spells Trouble For HMOs

If you’re thinking of investing in HMO or converting your current single-let property you need to know this. 

New council tax banding could be affecting your HMO profitability. If you’re investing in HMO’s or looking to increase your profit margins by converting your single-let, be sure to listen to this episode of The Progressive first. Kevin dives into detail on how local councils are charging tax by the room on some HMO’s, why it’s happening and how you can avoid it. If you want to stay up to date with the most recent property laws and increase your profitibability this episode is for you.  

 

KEY TAKEAWAYS. 

Up until recently, the council have always charged one council tax bill per property (HMO) however it could soon be that local councils charge council tax per the room. This would make a significant difference to the profitability of the HMO property.   A lot of landlords have invested in HMO rental properties as a way of maximising profitability from a single unit. The way this has been done is by taking a single tenancy unit and converting it into multiple self-contained units that include bedrooms with an en-suite and kitchenette facilities, however, to further increase profitability landlords have opted for a shared kitchen and living facilities for all tenants and as a result, some local council authorities have deemed this as chargeable for multi council tax bills. This drastically affects the profitability of HMO investments. 

 

The process works whereby the council will inform the VOA (Valuation’s Office) that and the VOA will place a banding or multi council tax bands on the property as a result of the multi-tenants occupying the self-contained unit. Depending on the ruling this can wipe out the profit from the property for the landlord all together.   The reason this change to HMO council bands is coming is due to local council budget cuts and councils are now looking at the regulation of self-contained building with multiple occupants differently. For councils, landlords are an easy target.   The council is now looking at HMO’s differently and re-evaluating the status of what is classed as a self-contained unit. One way to try and avoid this new banding is to convert the property with some en-suites but also with a communal bathroom and communal kitchen. The property needs to be habitable by both family and individuals.  

 

What does self-contained mean? The term is not directly set in legislation, it is in actual fact set by case law. As a landlord, you need to speak to the VOA if you have any queries, especially if you are looking to convert a property. You are also able to appeal a council tax banding here: gov.uk/council-tax-appeals and challenge your council tax banding.  HMO properties are normally let ‘all bills included’ basis and therefore as a landlord, you cannot apply for the 25% council tax discount.   There are four things that the council look at when determining the rate for that room these are: Is the property, Beneficial, Exclusive, Actual and Non-Transient.  There are a few things as a landlord you can do to avoid multiple council tax charges for your HMO. This includes not having locks on the bedroom doors, ensuites and kitchenettes and more critically If having all of the tenants on one tenancy agreement rather than individual tenancy agreements. 

 

BEST MOMENTS. 

“Councils are not just charging tax by the room, they’re giving it the highest band (A)” 

“Councils are trying to charge landlords by the room to get more money in.” 

“Some landlords have had council’s charge them council tax by the room, just because they have locks on the doors, even when the room doesn’t have it’s own bathroom or kitchenette.“ 

“We’re stuck in the middle of only some HMO’s being charged council tax per room” 

“You can’t just put your rent up and make the tenant pay. They’ll just leave and go to the competition down the road” 

 

VALUABLE RESOURCES: 
gov.uk/council-tax-appeals  

 

ABOUT THE HOST 

Kevin McDonnell is a Speaker, Author, Mentor & Professional Property Investor. He is an expert when it comes to creative property investment strategies. His book No Money Down: Property Invest talks about how to control and cash flow other people’s property to create financial freedom.    

CONTACT METHOD  

Kevin McDonnell Facebook  Kevin McDonnell website  Progressive Property