HMO Council Tax Changes in 2023 Explained

Council tax represents a yearly fee paid to the local council. The cost is determined by the Valuation Office, enabling the local authority to levy this charge. This revenue is allocated to support various local services, including waste collection, upkeep of roads, and the maintenance of parks and libraries.

Billing council tax

Council tax must be charged following Part 1 of the Local Government Finance Act 1992 (LGFA1992) and The Council Tax (Chargeable Dwellings) Order 1992.

An actual bedsit type accommodation where all facilities are shared can not be self-contained; therefore, the council tax banding will be for the entire house. Also, where a building has been entirely split into fully self-contained flats with a kitchen, bathroom, and WC for the exclusive use of the occupier or purpose-built blocks of flats, each flat is charged as a dwelling.

However, what if there's a bed-sitting room with a small kitchen within the room and the bathroom and WC are shared or a bedsit with an en-suite bathroom that shares a kitchen? Is this a bedsit or a self-contained unit for council tax purposes? Before 1 December 2023, it could be a self-contained unit - Clement (LO) v Bryant and others 2003 RA 133.

From 1 December 2023 in England, the position is changed if the property is an HMO by The Council Tax (Chargeable Dwellings and Liability for Owners) (Amendment) (England) Regulations 2023.

HMO definition

"HMO” means a building or part of a building which is a “house in multiple occupation” as defined by section 254 of the Housing Act 2004 but as if subsections (1)(e) and (5) of that section were omitted

The definition excludes section 257 HMOs (certain converted blocks of flats not up to specific building regulations).

Typically, an HMO applies where three or more unrelated sharers are in the dwelling. However, the definition for charging council tax includes two sharers, excluding the exclusions found in Schedule 14 of the Housing Act 2004.

The definition includes a licensable or non-licensable HMO.

For more details on defining a section 254 HMO, please see this handbook page.

Treated as a single dwelling

Where the property is an HMO (except a s.257 HMO), for Part 1 of the LGFA1992 (billing for council tax), an HMO must be treated as a single dwelling.

Therefore, any charge for council tax on a property that is an HMO (except s.257) from 1 December 2023 must be for a "single dwelling" and cannot be for multiple units within the dwelling (as long as the building is an HMO).

Where the HMO meets the "converted building test" (s.254(4) - a building or part of a building consisting of living accommodation in which one or more units of such accommodation have been created since the building or part was constructed) and the building includes a mixture of self-contained flats and bedsits, it's unclear if the whole HMO building is treated as a single dwelling and one bill for the building or if the apartments are billed separately. Specialist advice will need to be sought until this type of HMO has been tested.

Pre-December 2023

The 1 December 2023 amendments are not retrospective, so if you or the occupier have been billed for council tax for individual units in an HMO, nothing can be done for any period before December. However, from 1 December 2023, the HMO must be treated as a single dwelling.

You may need to contact the Valuation Office to re-evaluate the HMO as a single dwelling, which should be dated to have effect from 1 December 2023. The VO could do this from previous records without a visit because, presumably, it was initially valued as a single property before the VO split it. That said, they may wish to visit.

Liability of the landlord for council tax

Typically, under the hierarchy of liability found in section 6 LGFA1992, the resident occupier of a dwelling is always liable. Then, a list of liable persons is worked down until the liable person is found. For example, an unoccupied dwelling with no tenancies will make the freeholder liable.

However, under section 8 of the LGFA1992, certain classes of dwellings are payable by the "owner" in all cases. However, the definition of the owner can be confusing, and in some situations, the owner can be defined as the tenant.

The Council Tax (Liability for Owners) Regulations 1992 defines prescribed classes where owners are liable. Regulation 2 lists the classes and includes care homes, religious communities and others.

One class of dwelling in the list is Houses in multiple occupation, etc, defined as follows (as amended from 1 December 2023):

Class C a dwelling which

(a) was originally constructed or subsequently adapted for occupation by persons who do not constitute a single household;

(b) is inhabited by a person who, or by two or more persons each of whom either—

(i) is a tenant of, or has a licence to occupy, part only of the dwelling; or

(ii) has a licence to occupy, but is not liable (whether alone or jointly with other persons) to pay rent or a licence fee in respect of, the dwelling as a whole; or

(c) is an HMO.

For (c), HMO is defined as:

"HMO” means a building or part of a building which is a “house in multiple occupation” as defined by section 254 of the Housing Act 2004 but as if subsections (1)(e) and (5) of that section were omitted.

Regulation 2A of the same regulations changes the definition of "owner" for liability to be the person who has the inferior material interest of the whole dwelling and, if no such person exists, the person who has the freehold interest of the dwelling.

2A (1) In relation to a dwelling within Class C in regulation 2, section 8(3) shall have effect as if, for the reference to the owner, there were substituted a reference to—

(a) the person who has a relevant material interest which is not subject to a relevant material interest inferior to it;

or, if there is no such person—

(b) the person who has a freehold interest in the whole or any part of the dwelling.

(2) In paragraph (1), “relevant material interest” means a freehold or leasehold interest in the whole of the dwelling.

Suppose the whole dwelling is rented to a person or group of persons on a single tenancy. In that case, that tenancy becomes an inferior material interest to the freeholder, and the tenancy holder for the whole dwelling is liable for council tax. This applies to any parts of class C, namely:

• subsequently adapted for more than one household
• occupies only part of the dwelling (or only liable for rent on part of the dwelling); or
• HMO.

However, if only part of the dwelling is rented (for example, one or more bedrooms) and there is no tenancy for the whole dwelling, the freeholder (typically, the landlord) will be liable for the council tax.

Landlords should be cautious about excluding parts of the property from a tenancy, like lofts, basements or conservatories. It could be seen as only granting a tenancy for part of the dwelling - not the whole. See R (Goremsandu) v LB Harrow 2010 EWHC 1873, where the landlord's furniture was stored in the conservatory, so the local authority said only part of the dwelling was let. The landlord was successful, but it could have gone either way.

To explain who would have inferior material interests, we'll show some examples. As per 2A(2), relevant material interest includes a leasehold interest in the whole of the dwelling.

Example 1

The freeholder owns a four-bedroom house and rents the whole house to four friends. The landlord rents the entire residence to the friends on a single tenancy agreement. The dwelling is an HMO because the friends are unrelated and share facilities. Under the liability for owners regulations, the "owner" is liable. The tenants are liable for council tax because they have the "leasehold interest in the whole of the dwelling", and there is no further leasehold interest. They are therefore regarded as the "owner" for council tax purposes (r.2A(1)(a)).

Example 2

The same dwelling and occupiers are used as described in example 1 (four friends sharing), but in this example, each tenant has a tenancy for a bedroom. The dwelling has four separate tenancies, and it is still an HMO because they are unrelated and share facilities. In this example, there is no leasehold interest for the whole dwelling, and as a result, the liable person is "the person who has a freehold interest in the whole or any part of the dwelling" (r.2A(1)(b)).

Example 3

The landlord has a property which has been subsequently adapted for occupation by persons who do not constitute a single household by the addition of locks on individual doors. The property, therefore, falls under class C of the liability for owner's regulations (HMOs etc.). The property is rented to a family on a single tenancy. The family is liable for the council tax because they have an inferior material interest (i.e. a leasehold interest in the whole dwelling).

Example 4

The freeholder of a five-bedroom house rents the whole dwelling to a company with permission to sub-let. The house has been adapted for multi-occupancy use by the addition of locks on doors. The company sub-lets the whole house on individual tenancies per bedroom - 5 x tenancies. The occupiers are unrelated and share facilities, so the dwelling is an HMO. In this example, the freeholder landlord is not liable because of an inferior material interest (the lease for the whole residence to the company). As the company is letting only part of the building (a tenancy per bedroom), there is no further inferior material interest, so the company is liable for council tax.

Student lettings

When a property is entirely occupied by students enrolled in full-time education courses, it qualifies for an exemption from Council Tax. However, students must actively apply for this exemption. Their educational institution can furnish a certificate upon the student's request, confirming their full-time student status and eligibility for the exemption. This exemption typically includes the summer vacation period, even if the students' tenancy agreement extends through it.

In cases where the landlord is responsible for Council Tax, students should be requested to provide evidence of their study status. With this proof, the landlord can then apply for the exemption from the Council Tax with the local council.

Unfurnished and undergoing repair

Certain local councils offer a specific discount for unfurnished properties undergoing repairs or renovations.

The discount's eligibility criteria and extent can vary significantly between different councils. Generally, to qualify, the property must be demonstrably empty of all furnishings, indicating that it is unsuitable for occupation. Additionally, there must be ongoing repair works or renovations that prevent the property from being habitable. The duration of this discount often has a maximum limit, which can range from a few months to a year, depending on the council's policy. Property owners are advised to check with their local council for specific details regarding eligibility, the application process, and the exact terms of the discount.

Liability for council tax at the end of the tenancy

As discussed at the beginning, the person liable for council tax is determined by the hierarchy of liability in section 6 LGFA1992.

Where a tenancy has properly ended, for example, by the tenant giving proper notice and handing back the keys, the freehold owner will typically be liable.

However, the position is less clear if the tenant abandons the property or needs to end the tenancy properly.

The person liable for council tax is the "owner", which is defined as the person with an inferior material interest so that it can be the tenant.

Where the property is not a class C HMO (as defined in the liability of owner regulations discussed earlier), the leasehold interest must be for a minimum of six months. It can be for the whole or part of the dwelling. However, if the property is a Class C HMO, the material interest has no minimum length but must be for the whole residence.

NOT Class C HMO

The scenarios below are where the property is not a class C HMO like ordinary houses or flats.

Contractual periodic tenancy

If the tenancy agreement was granted for at least a six-month fixed term and then continues as a contractual periodic tenancy, the tenant will continue to have the inferior material interest and be regarded as the owner for liability for council tax until the tenancy is appropriately ended.

A contractual periodic tenancy will have a term saying that the tenancy does not end at the end of the fixed term but instead continues as periodic. It is treated as a single tenancy and is how the Guild tenancies produced by Tenancy Builder work.

See Leeds City Council v Broadley [2016] EWHC 1839.

Statutory periodic tenancy

Where the tenancy has a fixed term and has no term about periodic, it will go statutory periodic under section 5 of the Housing Act 1988. A statutory periodic is treated as a brand new renewal tenancy, and because it is periodic, it is not for a term of six months or more. As a result, from the moment the tenant ceases to occupy (regardless of whether the tenancy has ended), there is no inferior material interest, so the freeholder becomes liable to pay council tax. See MacAttram v. London Borough of Camden [2012] EWHC 1033.

Class C HMO

Where the property is a Class C HMO as defined earlier in the liability of owner regulations - namely:

• subsequently adapted for multiple occupancy,
• part let or rent not payable for the whole; or
• HMO

It is respectively submitted the position is different.

The freeholder will always be liable where part of the dwelling is let.

However, if a tenancy for the whole dwelling has yet to be correctly ended, it is respectfully submitted that the tenant who holds the inferior material interest is liable. This is irrespective of whether the tenancy has become a contractual or statutory periodic tenancy.

The tenant is liable in our view because the definition of material interest is different for Class C dwellings. No six-month term is required, so a periodic tenancy from the outset qualifies, as does a statutory one.

As long as the tenancy is for the whole dwelling, the tenancy holder will be the liable person until the tenancy is appropriately ended.

Tenant Fees

Council tax is only permitted under the Tenant Fees Act 2019 if it is payable to the billing authority.

A landlord must never seek payment of council tax from a tenant.

Where the landlord pays the council tax, the rent should never be shown as split between rent and council tax, which could be seen as charging for council tax. The rent should be the rent and no mention of any inclusion (just like a landlord wouldn't usually include other running costs like building insurance, repairs or admin).

Conclusion

The amendments made on 1 December 2023 have hopefully put a stop to the practice of council tax being banded on bedsit units that happen to have en-suite bathrooms or small kitchens by ensuring that most HMOs are treated as single dwellings for billing of council tax.

There are few relevant changes made to the liability of landlords. As long as they grant a tenancy for the whole dwelling, the occupiers will remain liable in most cases, even if the building is an HMO.

That said, questions will need to be answered over time for more complex buildings (particularly those regarded as converted building HMOs).