Landlord Council Tax – Who Pays?
Landlord council tax
Most landlords who let a property that is tenanted will not be liable for council tax. This is because where a property is occupied by a tenant; it’s the tenants who are responsible for meeting the costs of the council tax charge.
However, there will be occasions and situations where a landlord is liable, for instance if the buy-to-let property is empty due to a rental void.
Even where a landlord is liable for the council tax from the outset, as is the case for Houses in Multiple Occupation; it should be remembered that it’s perfectly reasonable for the costs to be recovered as a charge or part of the rent; providing such a provision is made within the tenancy agreement.
Recovery of the costs will however not change the ultimate liability for the council tax charge.
Landlords liability for council tax
Landlord tax liability is a complicated topic and this is also true for landlord council tax. Whilst in general it’s the tenant that pays; there are several important cases where landlords need to be aware of a shift in liability, exemptions from the charge and where a landlord is able to claim a discount on the council tax bill.
Firstly, the 20% of landlords that let Houses in Multiple Occupation (HMO properties ) are liable by statute for the council tax charge, even where the property in fully let. Another situation that frequently arises is where a landlords buy-to-let property is empty for a period because of a letting void; or whilst the property is being refurbished. Finally, where landlords let to students; the property is exempt from council tax. In all these cases the law can get confusing for both landlord & tenant, especially as individual Local Authorities interpret the rules differently
HMO landlords and council tax
Landlords that own a property that has been classed an HMO property are liable under the Council Tax Regulations for the payment of council tax due on the building.
As many landlords are aware; there are several definitions of what constitutes an HMO. The confusing aspect is that they are very different. This means that a property that could not be considered an HMO under the planning regulations may constitute one under the Housing Act 2004 and thereby require a licence.
The Government did remove the requirement for landlords to make a planning application for all properties let to three or more tenants.
What is a HMO for council tax purposes?
For Council Tax purposes the definition as to whether a property is classed as a HMO for Council Tax purposes is set out within the HMO the Council Tax (Liability for Owners) Regulations 1992.
For the purpose of Council Tax liability, a ‘House in Multiple Occupation’ is:
built or adapted for occupation by people, but who don’t live as a single household.
a dwelling which is occupied by people who have a tenancy or licence to live in only part of the a dwelling, or who pays rent or a license fee for only part of the dwelling.
For example; a house which has been divided into separate bedsits is a good example of an HMO under category, but a block of flats does not come into this category because each flat in the block is a separate, self contained dwelling in its own right.
The decision on whether a property is classed as a HMO for council tax purposes is made by the local authority, who periodically sends out a council tax assessor to band properties. The list of properties and their banding is maintained by every local authority & is publicly available to view.
If the landlord believes their tenant is exempt from council tax then they should appeal to the relevant local authority.
There are some other occasions where a property may be exempt from council tax.
Holiday lets (FHL) & council tax
One of the occasions where a landlord could be exempt from council tax is where a landlord has invested in a holiday let and they are letting on short-term lets through Airbnb. In this scenario many landlords will have opted for their property to be rated under commercial business rates as a posed to domestic rates which control the banding for residential properties council tax band. Under the small business rate relief scheme landlords of a single holiday home which has a rateable value of £12,000 or less the landlord will receive 100% relief on their rate liability. Where a landlord has kept the domestic rating a council can give furnished second homes or holiday lets a discount of up to 50% and this remains at the discretion of local councils.
Student landlords & council tax
A property that is let entirely to full time students is exempt from council tax and therefore neither landlord or tenant are liable for any council tax.
However, the situation is complicated where students are part time or may be living with non-students. This is frequently the case in some shared houses where former student tenants move into employment or where student friends move out to be replaced by employed tenants.
For more information on liability for council tax for student landlords.
Council tax and empty properties
The other area where a landlord may be exempt from paying council tax is where their buy-to-let property is empty because they are experiencing a rental void or their property is undergoing a major refurbishment.
Taking the first scenario where a buy-to-let property is empty. This means that it has to be unoccupied. The exemption applies for a maximum of 6 months and the property has to be vacant for the whole of this period (although up to six weeks of occupation during the period is allowed).
Each local authority have discretion on how they apply the empty property discount as of 1st April 2013.
The powers available are summarised in the table below:
Table: discounts for empty properties – England
Class A: second homes where continuous occupancy for 28 days or more is prohibited
Class B: second homes where continuous occupancy for 28 days or more is not prohibited
Class C: properties which are “unoccupied and substantially unfurnished”
Class D: vacant properties undergoing “major repair work” or “structural alteration”
Discount of 0%-50%
Discount of 0%-50%
Discount of 0%-100%
Discount of 0%-100% for up to twelve months: not available six months after work completed
From 1st April 2013 it has been possible for local authorities to charge a premium on the council tax to landlords of properties that have remained empty for 2 years or more. The premium can be up to 50% of the council tax on the property. From 1 April 2019 the premium can be up to 100% of the council tax on the property.
The government has prescribed two classes of dwellings which are exempt from the premium.
- a dwelling which would otherwise be the sole or main residence of a member of the armed services , who is absent from the property as a result of such service
a dwelling, which forms part of a single property that is being treated by a resident of that property as part of the main dwelling
The government has advised local authorities not to use this power to penalise owners of property that is genuinely on the housing market for sale or rent. However, many landlords would argue that they are now seen as a ‘cash cow’ for indebted local authorities who can justify the use of penal rates of council tax as a means for landlords to make sure their properties are available for rent.
Council tax – ‘unoccupied and substantially unfurnished’
There is no statutory definition of the term ‘unoccupied and substantially unfurnished’. Again, it is for the billing authority to decide whether a property meets this definition, and there is substantial case law in existence. The Department for Communities and Local Government (DCLG) provided some guidance on this point in 2014:
A property which is substantially unfurnished is unlikely to be occupied or be capable of occupation. A property which is capable of occupation can reasonably be expected to contain some, if not all, items from both of the following categories: furniture such as bed, chairs, table, wardrobe or sofa, and white goods such as fridge, freezer or cooker.
Where a property is said to be occupied it will be reasonable for the local authority to cross-check with the electoral roll, or ask for evidence, such as utility bills showing usage of services, driving licence as proof of address, or receipts or other proof of moving costs.
Residents who disagree with the billing authority regarding whether a property is ‘unoccupied and substantially unfurnished’ may take their case to the Valuation Tribunal.
The relevant legislation is the Council Tax (Prescribed Classes of Dwellings) (England) (Amendment) Regulations 2012. The Council Tax (Exempt Dwellings) (England) (Amendment) Order 2012 (SI 2012/2965) abolished ‘Class A and C exemptions’, which provided for six months’ exemption for empty dwellings and properties undergoing structural repair or alteration. These ‘classes’ do not relate to the ‘classes’ set out in the Table.
The amount of discount to be offered to properties falling into the categories in the table above is entirely at the discretion of the billing authority. Many authorities offer no discount for properties falling into these categories. Others offer a short period of exemption (for instance, one month) followed by full liability; or a short period of exemption, followed by a longer period of discount, followed by full liability.
Finally, the regulations require the property to be substantially unfurnished. This is where there can be some confusion. Often local authorities will take the existence of some furniture as evidence of occupation even when the landlord is only storing furniture or has inherited ‘stuff’ as a result of a recent acquisition. An empty property is exempt from council tax for 6 months, whilst a landlord with an empty furnished property will benefit from a 50% discount. An empty properties exemption only lasts for 6 months after which a 50% discount applies.
In the case of a property that is undergoing refurbishment works that means that it is uninhabitable; a property benefits from an exemption from council tax liability of up to 12 months. After this time the 50% empty property discount will apply. Most councils will need evidence that the property is uninhabitable. This may include a builders’ schedule of works. I’ve had a situation myself where the property has had no kitchen or bathroom. An inspection by the local authority council tax inspector to verify this is normally sufficient to satisfy the powers that be.
If the period of refurbishment is going to be longer than 12 months and you are dissatisfied with paying 50% council tax then it is possible for you as the landlord to appeal to the Valuation Office to get the property removed from the council tax list altogether.
Other useful stuff on landlord tax: