Giving and Giving on Council Tax

HMO landlords have long been grumpy about council tax. The reason for this is the somewhat unequal manner in which it is generally applied in relation to their properties. This is because of the confusing concept of disaggregation. In HMO property it has always been possible to value each unit as a separate entry on the council tax register (called a hereditament). The Valuation Office Agency (which is the independent body responsible for maintaining the council tax register) officers are empowered to aggregate separate units in HMOs together. But it is a discretionary power and they don’t have to do it. Increasingly, HMO landlords have found their properties being referred to the VOA to be re-assessed, presumably by local authorities, and VOA officers have separated them out into multiple entries on the council tax database refusing to exercise their discretion to aggregate. This is usually called disaggregation although it is actually just a refusal to exercise the discretion to aggregate.

The part that really causes annoyance is that the process of disaggregation is pretty random. It is perfectly possible for a landlord to find that their property has been disaggregated and the council tax burden increased while the property next door has continued to be aggregated and face a lower tax base. As council tax is usually paid by occupiers the actual burden falls primarily on tenants and, as we are talking about HMOs, usually the poorest tenants.

This has been a point that landlords and landlord groups have pressed on for years. However, they have not had much traction until recently. In February the government held a consultation on the issue of valuation of HMO properties. I will freely admit I did not think that much would come of this and that the consultation was being held to keep landlords quiet. So it was a surprise when in October the government responded to the consultation and essentially caved in. It stated that it would change the relevant regulations in order to ensure that the relatively small number of HMOs which had been disaggregated would be re-assessed and re-aggregated again. They further said that this this would be done before the end of 2023. There is still time to get this done so it will be interesting to see when the new regulations are laid,

However, as one landlord concern relating to Council Tax was being removed a new one arose from the Renters (Reform) Bill. Council Tax is normally payable by the person residing in the property. Failing that it is payable by a person with a material interest in the property, and failing that by the owner. This has been a concern because under the relevant regulations to have a material interest you have to have a tenancy with a fixed term of more than six months. This is a big deal for landlords as if a tenant abandons the property unexpectedly then they are immediately liable for the Council Tax from that day onwards unless they can show the tenant has a material interest in it. This causes much annoyance if tenants leave without proper notice as, while the landlord may be able to deduct rent from their tenancy deposit to cover the notice period they will also face a council tax bill for the same period which usually ends up exhausting the deposit. As the RRB gets rid of fixed term tenancies altogether and so it was impossible for any tenant to have a six month fixed term and so impossible for them to have a material interest. As a result any tenant who left their property under the RRB without giving the required two month’s notice would cease to be liable for the Council Tax immediately with the liability passing to the landlord. This is an outcome that would be likely to please local authorities who have difficulty chasing tenants who have left for unpaid tax and would much prefer to be able to charge landlords.

Again, though the government is being generous to landlords on Council Tax. In amendment NC6 made to the RRB on Wednesday they altered the relevant regulations so that tenants under the RRB would still have a material interest up until their tenancy was properly terminated. Therefore a tenant who ups and leaves without notice will remain liable for Council Tax until their tenancy is properly terminated and landlords will not fall liable immediately.