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Single Council Tax Bands for HMOs by the end of 2023

Published: 24/11/2023

In a significant move to streamline and simplify the taxation structure for House in Multiple Occupation (HMO) properties, the UK government has recently declared its decision to introduce a single council tax band system for HMOs by the end of 2023. This decision is poised to have very positive implications for landlords, tenants, and local authorities, resulting in fairer taxation of shared housing.

House in Multiple Occupation, commonly known as HMO, refers to properties shared by three or more unrelated individuals who share facilities such as a kitchen or bathroom. These properties have gained popularity in recent years due to the rising cost of living and the need for affordable housing options. However, the existing council tax system for HMOs has been criticised for its complexity and perceived lack of fairness.

As of now, HMOs are subject to a council tax system that allows rooms in some HMO’s to be assessed as separate units for council tax purposes. This means tenants renting a room can end up being liable for the same council tax as a one bedroom flat or a small house – a significantly higher amount than the share of the bill for the property as a whole. This has caused a significant problem for Landlords whose HMO’s had been split for council tax, since would have made their rooms uncompetitive against others that are otherwise similar in the market.

The guidance from local authorities on banding of council tax for HMO’s wasn’t sufficiently clear which left it open to interpretation and the discretion of assessors and the Valuation Office Agency (VOA).

The government's decision to implement a single council tax band for HMOs is a response to these concerns. By the end of 2023, the new legislation is for HMOs to be placed in a single tax band. This move is expected to simplify the taxation process, making it easier for local authorities to manage and for landlords and tenants to understand. The VOA will work with councils to identify HMO’s that have been affected with a view of re-banding these properties with a single council tax liability.

Benefits of the New System:

1.Fairness and transparency. The single council tax band for HMOs aims to create a fairer and more transparent taxation system. Similar properties will be treated equally, reducing discrepancies and fostering a sense of equity among property owners and tenants.
2. Simplicity and ease of administration. Local authorities will benefit from a simplified system that is easier to administer. This can lead to more efficient use of resources and a reduction in administrative costs associated with managing the council tax for HMOs.
3. Encouraging affordable housing. The streamlined tax system may encourage landlords to invest in HMO’s, knowing that the taxation process is straightforward and predictable. This could contribute to increased availability of affordable shared accommodation to meet the demand for affordable homes.

Conclusion

The UK government's decision to introduce a single council tax band for HMOs by the end of 2023 represents a bold step toward a fairer and more transparent housing policy. While challenges may arise during the implementation phase, the overall impact is expected to be positive, fostering a more equitable environment for landlords, tenants, and local authorities alike. This move aligns with the government's commitment to addressing housing challenges and creating a housing market that is accessible and fair for all.