HMOs and room rentals can be a minefield when it comes to correct determination for Council Tax purposes – is it a ‘simple’ HMO (House in Multiple Occupation) where the landlord is liable or is it actually ‘self-contained’ and thus banded by the Valuation Office Agency ? Those are the most basic questions but there is however a lesser known third situation which is much more worrying for those who run HMOs and rent rooms, that of ‘ John Laing & Sons’.
What is a Council Tax HMO (House in Multiple Occupation) ?
A Council Tax HMO is a property which meets the definition laid down in the 1993 & 1995 amendments to the Council Tax (liability for owners) Regulations 1992. This currently states :
Houses in multiple occupation, etc
Class C a dwelling which
(a)was originally constructed or subsequently adapted for occupation by persons who do not constitute a single household;
(b)is inhabited by a person who, or by two or more persons each of whom either—
(i)is a tenant of, or has a licence to occupy, part only of the dwelling; or
(ii)has a licence to occupy, but is not liable (whether alone or jointly with other persons) to pay rent or a licence fee in respect of, the dwelling as a whole.
In the above situations Section 8 of the Local Government Finance Act 1992 mandates that the landlord is responsible for payment of the Council Tax charge which is due (if any).
But what happens if it’s ‘self-contained’ ?
Where a property is regarded as ‘self-contained’ for example, a room with attached kitchen & bathroom facilities, the Valuation Office Agency may invoke the Council Tax (Chargeable Dwellings) Order and band the room individually for Council Tax purposes.
The definition of ‘self-contained’ is not directly set in legislation but is shaped by case-law and can sometimes require only minimal facilitates. This means that you should speak to the Valuation Office Agency if you have any queries and they will be able to advise regarding the property.
What if it’s none of the above ?
Where a room is not sufficient to be regarded as a dwelling in its own right or as a self-contained dwelling under the Council Tax (Chargeable Dwellings) Order then it may appear that all your problems are resolved however this is not always the case. There is a third issue which needs to be considered and we will look at this next.
What is ‘John Laing & Sons’ and how does it apply to HMOs and rooms?
John Laing & Sons is a 1949 case which has been most commonly used in respect of Non Domestic Rates cases however the applicability to Council Tax has been determined previously via Valuation Tribunals. In this particular case the court set out 4 main aspects to consider for ‘rateable occupation’ to occur, that the occupation should be beneficial, exclusive, actual and non too transient. Where these aspects are met there is occupation sufficient to warrant its own Council Tax band – even if it is just a single room.
Valuation Tribunals have on occasion found that the 4 aspects required for ‘rateable occupation’ are also valid case-law with regards to Council Tax occupation of a property. This means that, under Section 3 of the Local Government Finance Act 1992, anything which meets the definition of a dwelling is liable to be individually banded for Council Tax purposes and there is no need to consider any aspect of self-containment in this decision.
In a 2016 example a landlord who ran a HMO with a range of rooms (some which may arguable have been ‘self-contained’ units) appealed to the Valuation Tribunal after the Valuation Office determined that each room would fall as a ‘dwelling’ by virtue of John Laing & Sons.
On appeal to the Valuation Tribunal they found that the Valuation Office were correct and that the HMO should be split in to a number of individual dwellings based on the tenancy agreements which were in place. Each dwelling was then banded for Council Tax purposes – the Council Tax HMO status would then need to be re-determined on each ‘new’ dwelling and liability ascertained.
But what if I’m a resident landlord who only rents a room to an occupier ?
In principle the same objective test should be considered – is the occupancy of that room sufficient to meet the test of John Laing & Sons ? If so there is the possibility that the room could be banded individually for Council Tax purposes.
What happens if the occupier moves out ?
Where a ‘room’ has been deemed to be a separate dwelling only on the basis of John Laing & Sons then, where the room no longer meets the 4 requirements, it should be re-assessed and the individual Council Tax banding removed if it is no longer appropriate. This obviously could lead to a lot of back and forth movement where a property has multiple rooms and multiple periods of occupation.
So why isn’t it being used in every case ?
That is the big question. If it is valid case-law for defining a dwelling then it should arguably be applied to each and every case. As to why it is not applied is not clear however there’s nothing to sop the Valuation Office Agency implementing it in to their decision-making process from today if they so wish (and arguably they should already be doing so !).
The good news is that currently they don’t seem to be pushing the issue too readily but as budgets tighten and finances dry-up there may well be a greater emphasis made on looking again at properties in these situations.
Assistance from LGFA92
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This article is solely the view of LGFA92, the Council Tax experts, based on our interpretation of legislation. Your local authority is free to dispute this view. A binding decision may require the intervention of a valuation tribunal.