Business Rates to replace Council Tax ?

By | October 12, 2016


Council TaxA lot has been made about recent calls for landlords to be treat as businesses for the purpose of House in Multiple Occupation (HMO) property rentals but how might it affect landlords ?. Although initial plans are for HMO’s this could easily be expanded to include any rental property.

The changes are only a suggestion at present but with the localisation of Business Rates it may well be that changes are made to allow the local authorities to raise and keep more monies.

Current situation regarding Council Tax and Business Rates

All residential properties are currently banded for Council Tax purposes , rather than Business Rates – this includes HMO’s and private rental properties. By being banded for Council Tax purposes the property is entitled to any discounts or exemptions which apply.

The average Band D Council Tax band within England for the 2016/17 year is £1,530 – this means that any Council Tax charge due for a landlord is restricted to no more than £30 per week (on average).

A large proportion of HMO’s are student accommodation and as such the property is subject to a Class N exemption. This currently results in no Council Tax being due for the period the students are in occupation.

How would the suggested changes affect property ?

Business Rates are (in general) based on the open market rental value of a property. Residential property rental rates are not directly comparable however the average rent for a room in a HMO is £77 per week  – for a 4 bed property this is roughly rent £16,000 per annum.

Small Business Rates Relief (SBRR) currently exempts some smaller properties from Business Rates. From April 2017 a business property with a rateable value of less than £12,000 will receive full rates relief. Above this figure the amount will be tapered on the next £3,000 however properties above £16,000 will not be eligible. This means that SBRR would not apply to the average HMO property.  It should also be noted that a landlord with more than one property would likely not be eligible for SBRR regardless of the value of those properties.

A property rated at a value of £16,000 would be assessed using the standard multiplier – this has not yet been confirmed for 2017/18 however it would not be expected to be too dissimilar to the current rate of 49.7p This would incur business rates of £7,900 per annum or £152 per week – the equivalent of 2 rooms worth of rent each week or an average increase of £38 per week per tenant in rent


If Business Rates were applied in its current format, without any adjustments, then it’s clear that landlords would be forced tosignificantly increase rents on a property. These extra charges would have to be recouped from the rent.

Many legislative changes would be required and the figures should be a worst case scenario but only time will tell as to what the situation may be but if this was extended to include rental properties then several million properties would be affected.

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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.