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What landlords need to know about Council Tax liability

Council tax bill for Haringey with some coins in the background

A landlord’s liability for council tax is quite tricky to figure out and navigate.

This is a practical guide that explains who is responsible for paying council tax when a landlord lets a property to tenants, including students, HMOs and single lets, and what happens when the tenants leave before the end of their notice period. I also explain how the rules will change when the Renters Reform Bill becomes law.

Council tax liability for single lets

If a landlord lets a property to a single household or two sharers, the effect of section 2 of the Local Government Finance Act 1992 is that the tenants who are “resident” are responsible for paying council tax, and not the landlord. A tenant is “resident” if they are an adult and the property is their sole or primary home. If there is more than one tenant, such as a couple, they are jointly and severally liable for the council tax.

Who pays council tax for HMOs?

It is the owner of an HMO who pays council tax, and not the tenants. The definition of HMO for council tax is slightly different from the usual definition under the Housing Act 1988, and is in the Council Tax (Liability for Owners) Regulations 1992. The definition of an HMO for council tax purposes is a dwelling where the tenants or licensees only have the right to occupy part of the dwelling, or aren’t liable to pay rent or a licence fee for the whole dwelling.

The Council Tax (Chargeable Dwellings and Liability for Owners) (Amendment) (England) Regulations 2023 clarified that HMOs are to be valued as a single property for the purposes of council tax. This means that the Valuation Office can no longer disaggregate or split HMOs into single units, so that council tax is payable for each room rather than the whole property. The Explanatory Memorandum says that the Regulations “will ensure that an HMO has one council tax band and receives only one bill.”

These regulations adopt broadly the same definition of HMOs as those set out in Section 254 of the Housing Act 2004, but exclude a converted block of flats covered by Section 257 (that’s the reference to Section 254(1)(e) below) and properties in Schedule 14.

‘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;”.

This means that the landlord is liable to pay the council tax for Section 254 HMOs, and the HMO will be one property for the purpose of council tax, and can no longer be disaggregated into single units. Section 257 converted flats aren’t affected by the regulations.

>> Related Post: What landlords need to know about HMOs

>> Useful Resource: DLUHC Information Letter of 8 November 2023

Students and council tax

Full-time students at college or university are exempt from paying council tax. If everyone in the property is a full-time student, no council tax will be payable. If the student lives with others who aren’t full-time students, the others will need to pay council tax. However, the full-time student is disregarded for calculating the council tax.

Who pays council tax if tenant leaves before end of notice period?

packing boxes and house plants moving out

Who pays council tax if tenant leaves during a fixed term tenancy

A tenant is liable for council tax during a fixed term tenancy of at least six months. If they leave before the end of the fixed term, they’re still liable for council tax until the expiry of the fixed term.

One of my tenants asked to move out mid-way through her fixed term tenancy during Covid. I agreed to release her if she gave a month’s notice, as that seemed fair to us both, and is the usual period for a tenant’s notice to quit. She moved out two weeks before the end of the month’s notice, and the council sent me a council tax bill for those last two weeks.

I successfully challenged it by sending them a copy of the assured shorthold tenancy with the fixed term expiring six months later. They waived the void of one day between the end of the fixed term and the day the next set of tenants moved in.

See below for how this will change under the Renters Reform Bill.

What happens if a tenant moves out during a contractual periodic tenancy?

When the fixed term ends and it becomes a contractual periodic tenancy, the tenant remains liable for council tax until the end of the tenancy. A contractual periodic tenancy arises when the original tenancy agreement contains terms that states it will continue as a contractual periodic tenancy.

For instance, if a fixed term period ends on 21st February 2024, and then becomes a rolling contractual periodic tenancy, the tenant would need to give at least one month’s notice to quit that will expire on the 21st of the month. If they give notice on 24 January 2024, that’s not one month’s notice before 21st February. This means their notice will expire on 21 March 2024, and their council tax liability will continue until 21 March 2024, even if they move out on 24 February.

Who pays council tax if tenant moves out during a statutory periodic tenancy?

Where a fixed term tenancy becomes statutory periodic tenancy, the tenant will no longer be liable if they move out. This is because a statutory periodic tenancy doesn’t give the tenant a sufficiently “material interest” in the property.

Consequently, to use the same example as above, but where the tenancy became a statutory periodic tenancy, if the tenants move out on 24 February, they won’t be liable for council tax for the period from 24 February until their notice expires on 21 March. The landlord will need to pay it instead.

In other words, in order to minimise liability for council tax, it is better for landlords to have contractual periodic tenancies and not statutory periodic tenancies.

Does a landlord pay council tax during voids?

skip full of building materials on construction site

When a property is empty, the landlord is responsible for paying council tax. However, some local authorities give landlords a grace period after a tenant moves out during which they either don’t pay council tax or they receive a discount. Others charge the full amount from the day the tenant or previous owner moves out, in order to encourage landlords to let the property as soon as possible.

For instance, my local council, Maidstone Borough Council, charges the full council tax for empty properties, regardless of whether they are being refurbished. There are no relevant exceptions for landlords or other property investors. The policy is the same for furnished and unfurnished properties.

Oxford City Council has a different policy that is more supportive of landlords and investors. Owners of empty unfurnished properties have one month’s grace period where no council tax is payable. If the property is undergoing major works and/or structural repairs, there is a 25% discount for up to 12 months, followed by the full charge.

However, if the property remains empty and unfurnished for two years, without being refurbished, the council adds an empty home premium of 100% onto the council tax. The premium increases to 200% on properties that have been empty and unfurnished for five years or more. This applies to the property itself, so a change of ownership won’t affect it.

As the rules vary so much between council to council, it’s important to check the exact policy of the local authority. Don’t make any assumptions, and do claim any discounts for major repair work, if the council offers them.

>> Related Post: How to reduce costs and risks during void periods and refurbishment

How will the Renters Reform Bill affect council tax?

The Renters Reform Bill has a clause that changes the definition of “material interest” in Section 6 of the Local Government Finance Act 1992 to include an assured tenancy, which is what will be replacing assured shorthold tenancies.

The explanatory notes to this clause say that it means tenants under an assured tenancy will “continue to be liable for council tax until the end of the tenancy even if they vacate the property and leave it unoccupied before the end of their tenancy”.

Consequently, the artificial distinction between contractual and statutory periodic tenancies will disappear, and the tenant will be liable for council tax until the end of their two month notice to quit.

what landlords need to know about council tax with a bill and coins

3 thoughts on “What landlords need to know about Council Tax liability”

  1. Thanks so much Suzanne i so much appreciate your updates in property i am a Landlord with portfolios in abroad but not yet in United Kingdom, i am on my move to become one that is why i needed to join in the group to know the pros and cons so that i can make a sensible decision.

  2. I have an HMO which is split into three one bed apartments and one three bed. The tenants do not share anything except public area eg hall and stairs. My tenants have always paid their own council tax. Does this continue?

    1. Section 257 HMOs are excluded from these regulations, but section 254 self-contained flats do come under the regulations.

      If you’re not sure, you should speak to the council or call the NRLA.

      Here’s another useful resource: https://www.gov.uk/government/publications/council-tax-information-letter-32023-changes-to-regulations-for-houses-in-multiple-occupation-hmos/council-tax-information-letter-32023-changes-to-regulations-for-houses-in-multiple-occupation-hmos

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