When investing in an HMO (House in Multiple Occupation), there are several important factors to consider. We frequently advise landlords on how to source, finance, and manage their investments, while also providing guidance on crucial areas like compliance and one often-overlooked aspect is Council Tax.

How Does Council Tax Differ for HMOs?

Unlike single-let properties, the landlord of an HMO is generally responsible for paying the Council Tax. However, there are some exceptions, which we'll outline below.

If you’re starting an HMO conversion project, it’s a good idea to contact your local Council Tax department. In some cases, you may be eligible for a short exemption period if the property is vacant.

Council Tax Banding for HMOs

This can be a complicated area and is worth planning carefully from the start. While we hope the following guidance is helpful, we recommend consulting a specialist before beginning an HMO project.

According to the Gov.uk website, each separately let part of an HMO may be considered a separate dwelling with its own Council Tax band. However, in some cases, the Valuation Office Agency (VOA) may combine the bands.

Here are a few examples to illustrate how Council Tax is typically calculated for HMOs:

• Minimal adaptations: If the property has minimal changes, like simple locks on bedroom doors and shared communal spaces, the VOA usually assigns a single Council Tax band for the entire property.
• Adapted rooms: If individual rooms have been modified (e.g., with en-suites or kitchenettes), each room might receive its own Council Tax band, even if some facilities are shared. This assessment can vary, making it a potential challenge for landlords.
• Purpose-built HMOs: Purpose-built HMOs are usually assessed individually for each unit, without combining bands.

Further information can be found on the Gov.uk website.

It’s Not Always the Landlord’s Responsibility!

While landlords are generally responsible for paying Council Tax on HMOs, there are exceptions. In some cases, the tenants may be liable. For example:

• Sharers with tenants in common: If an HMO does not require a license and is let to a group of friends as joint tenants, they may be responsible for the Council Tax. In this arrangement, the tenants occupy the entire property, and it is not classified as an HMO for Council Tax purposes. However, landlords must ensure they meet licensing requirements.

As mentioned earlier, the assessment of whether rooms or the whole property are banded is often inconsistent, and landlords who feel the decision is unfair should appeal.

Risks of Mismanagement

If Council Tax is incorrectly assessed, you could end up with separate bills for each room. Although tenants would technically be responsible if the property is single-banded, the increased cost may make it difficult to pass on, leading to inflated Council Tax bills and the need to raise rents.

To avoid these pitfalls, ensure your tenancy agreements are correctly worded. For example, our contracts include the following clause: “To pay the charges for Council Tax (or similar charge which replaces it) and Utilities and other relevant suppliers that you are responsible for as specified in this agreement.” Always seek legal advice to make sure your agreements are airtight.

We hope you found this article helpful – if you have any questions about investing in an HMO, we're always happy to help.