Landlords rally against HMO council tax ‘disaggregation’ rules

Published on 18th October 2021, 11:31am

Landlords are seeing council tax charged multiple times on the same HMO, prompting those affected to join forces and fight these rulings.

If councils charge per individual unit rather than the whole building – in what’s known as ‘disaggregation’ – the total cost of the tax can skyrocket.

One landlord estimated that council tax outgoings could go from £800 a year to £3,500 due to his property being split into five units.

HMOs can be disaggregated where each floor of the house has shared facilities, like a kitchen and bathroom. If rooms have their own kitchenette they may also be separately banded.

The Valuation Office Agency dictates that HMOs with more structural alterations are more likely to have units split into different bands.

Legislation enabling disaggregation has been around since 1992, but it’s thought the Valuation Office has become more active in recent years.

Unless some informal measures are established, disaggregation also means tenants are liable to pay council tax rather than the landlord. This potentially hits some of the most financially vulnerable people, as tenants in HMOs tend to rent rooms to keep costs down.

Portsmouth landlords

The Portsmouth and District Private Landlords Association is vocal about these council tax measures.

Martin Silman, chairman of Portsmouth and District Private Landlords Association, said: “Tax law has always been arcane, but this is one of those interpretations so in favour of the local government and so against the landlord it’s amazing it doesn’t get more publicity.

“When the council has a target to build 5,000 homes, taking money off all five units is a good idea – but the tenants are suffering.”

Another vocal landlord in Portsmouth is Daryn Brewer, managing director at Propods, who is also part of the association. He specialises in the shared living market, so has been hit hard by council tax disaggregation.

He said there is no consistency on whether properties are disaggregated, and this comment was echoed by almost every landlord spoken to for this piece.

Brewer suggested councils are happy to split properties up because it makes it look like they’ve created new homes.

This means they get the New Homes Bonus, where the government pays local councils for new build homes, conversions and long-term empty homes brought back into use.

Brewer accused the Valuation Office Agency of creating “a ‘poll tax’ for HMOs”, especially as disaggregation affects landlords and vulnerable tenants alike.

Poll tax was a controversial tax levying a fixed sum during Margaret Thatcher’s time as Prime Minister that famously sparked riots in 1990.

It was ultimately replaced by council tax.

Brewer said: “There’s a danger this policy could cause homelessness, because there are vulnerable tenants in some of these HMOs.”

Landlords fight back: Facebook group and petition

Landlords affected by the issue up and down the country have established a Facebook group about the problem, called ‘HMOs and Council Tax’.

The members are banding together due to the complicated nature of council tax, which many see as a barrier to contesting disaggregation. That way they can support one another and aim to prevent their properties being taxed multiple times.

The group are looking to lobby against the rules, as they are weighing up whether to take the Valuation Office to court over one member’s HMO being disaggregated – they are hoping to set a precedent if it’s found that charging council tax multiple times on the property is unlawful.

Daryn Brewer, who is part of the group, is currently in communication with the Valuation Office Agency – and is considering launching a campaign to raise awareness about the issue.

Another member, Ben Lenton, has set up a petition, with the aim to ‘Prevent Council Tax bills being charged for individual bedroom lets’.

At the time of writing the petition has garnered nearly 1,600 signatures, though it needs 10,000 for the issue to be debated in parliament.

Valuation Office Agency: ‘reactive, not proactive’

Portsmouth City Council was approached on the subject, and said it doesn’t decide how many units an HMO contains – instead it’s down to the Valuation Office Agency.

However landlord groups see the Valuation Office as more of a ‘reactive’ than ‘proactive’ organisation.

It’s thought that the agency follows the lead of the local authorities up and down the UK when identifying properties that should be inspected and then disaggregated.

NRLA: All HMOs should be classed as single dwellings

The National Residential Landlords Association is well aware of the issue.

Policy manager James Wood has noticed an increase in landlords ringing up about the matter, though he sees it as a problem that causes a big headache to a relatively small group – he receives a call about it every few weeks.

Wood argued that it would make more sense and provide consistency if HMOs were simply classed as one dwelling in every case for tax purposes.

The NRLA has written to the Law Commission to request such a change. The commission is an independent body set up by parliament to propose reforms.

Wood said: “Every other aspect of the law landlords follow sees HMO properties classed as one dwelling shared by multiple people, like safety requirements.

“It’s an inconsistency that can’t remain, which is why we wrote to the Law Commission asking them to include it in their next programme of law reform.

“When someone says ‘I have one HMO’ all aspects of the law should recognise that this means one property, not multiple homes, and it should have one council tax bill as a result.”

How to protect yourself

In order to guarantee your properties won’t be split into multiple units, Wood noted that you can use joint tenancies.

This is where all the tenants are on the same tenancy agreement, and can be ideal for groups of friends who trust each other to share a contract.

However in general room tenancy agreements tend to work better for tenants who don’t know one another.

Landlords can boost their chances if they ensure their properties have a shared living area across the HMO, and don’t make excessive structural changes to the property.

When approached on the subject the Valuation Office Agency noted that listings officers make valuation decisions based on the facts, referencing legislation and case law.

Whether they band properties separately or not depends on how they are used and adapted to provide separate amenities.

The online guidance was also linked – the ‘Banding of houses in multiple occupation’ section outlines why an officer may decide to split up an HMO for council tax purposes.

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