Landlords targeted in ‘stealth tax’ rise

Published on 1st March 2022, 3:17am

Hundreds of HMO landlords are being charged council tax separately for every unit rather than the whole building, and there are concerns this trend is on the rise.

Penny Mourdaunt, minister of trade and Portsmouth North MP, who said: “This is a growing problem and it is arbitrary. It is stopping homes being built because developers’ business models become unviable.”

And Ian Fletcher, of the British Property Federation, said: “Local authority budgets have been squeezed for more than a decade, so they need ways of getting more money. There is only one way this will go and that is up.”

This issue has now reached the mainstream press, but it was investigated by Property Investor Post last year.

Valuation Office Agency (VOA) rules state that HMOs can be ‘disaggregated’ – the term used when splitting up the home for council tax purposes – where each floor of the house has shared facilities, like a kitchen and bathroom.

Landlords say there’s a lack of consistency on disaggregation, with some councils apparently being more prone to splitting up HMOs than others.

Ultimately the buck stops with the VOA, but the government body is generally seen as reactive to local authorities when deciding which properties should be inspected and disaggregated.

Daryn Brewer, a 43 year old landlord from Portsmouth, saw his six bedroom HMO reclassified as six separate dwellings, increasing the council tax bill from £1,821 to £7,287.

He told The Telegraph: “This looks like the poll tax. It’s an absolute mess.”

He previously alleged to Property Investor Post that councils are happy for properties to be split up in their district because it looks like they’ve created new supply and can therefore apply for the New Homes Bonus.

If you’re worried about being caught out by council tax disaggregation a sure-fire way of being safe is using a joint tenancy for all your tenants, where all tenants use the same tenancy agreement. This can work well for tenants that know each other and can trust one another to share a contract, but it’s less suitable for strangers.

Another method is to ensure you have a shared living space across the whole of the HMO and don’t make excessive structural changes to the home.

The VOA makes its decisions based on referencing legislation and case law.

The body uses this guidance – see the ‘Banding of houses in multiple occupation’ section – when deciding whether to split up a property in separate units for council tax purposes.

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