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  • HMO & Multi-Lets

    Council Tax implications on separate rooms

    Hi, my first post on this subject, and apologies if I am going over old ground. I recall a previous thread where the subject was a Council which attempted to make a separate council tax charge on every room in an 11 bed HMO. It was resolved in the end, if I recall, by the council in question accepting that they were mistaken.

    However, during said discussion someone posted a quotation from a Valuation Office which stated that separate CT might well apply if "en-suite bathroom and/or cooking facilities" were installed. This is of huge importance, and I don't recall that the "and/or" bit was properly resolved. As I am about to dive into my first HMO project I would appreciate any guidance that more experienced members can offer.

    I was under the impression that just installing en-suite bathroom facilities would not result in separate CT liability. If this was in addition to kitchenette type cooking facilities, then yes, I would accept that it would as the tenant would be effectively self-contained.

    My plan is to install en-suite bathrooms in half of the rooms, with the other half being served by 2 separate communal bathrooms. All cooking facilities will be in the shared kitchen.

    I appreciate that different councils adopt different policies, but this has such huge implications that I can't believe there isn't a definitive ruling somewhere. Can anyone clarify the position? My apologies if this has in fact been covered elsewhere.
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    I have just ended up losing an appeal for a landlord on this issue I am afraid. The legal position is that a council is empowered to re value a property as an HMO and to levy a separate charge for each room. There are a number of factors but separate kitchens or bathrooms are relevant. Having a shared kitchen or bathroom for any occupiers will make this a possibility. One or the other is enough. We tried to argue in the recent case that not all the occupiers were sharing and that some of them were transient but the valuation tribunal would not accept this.

    Therefore the short answer is that the council will have a discretion to re value your property. Whether they do or not is up to them a bit.
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    David Smith
    Landlord & Tenant Solicitor
    Anthony Gold Solicitors

    Find me on LinkedIn: uk.linkedin.com/in/dsnsmith

    All opinions are my own and do not reflect those of my firm. No comment made should be taken as legal advice and you should consult a solicitor or other legal professional for advice on your specific situation.

    Thank you very much David. I wonder if you might clarify a couple of points, though:

    Where you say:

    "There are a number of factors but separate kitchens or bathrooms are relevant. "

    are you able to expand on this? What exactly did they say about these separate facilities?

    And where you say:

    "Having a shared kitchen or bathroom for any occupiers will make this a possibility. One or the other is enough. "

    you have me confused! How did they conclude that shared kitchen and bathrooms were a contributory reason for charging CT on each room? Are you saying that because some tenants enjoyed shared facilities those that did not (ie had en-suite facilities) were held liable for separate CT?

    You say:

    "We tried to argue in the recent case that not all the occupiers were sharing and that some of them were transient but the valuation tribunal would not accept this."

    What is the link between, and the relevance of, sharers and transients in this context? I admit you've lost me again! What is a transient in the context of an HMO?

    Your case might be extremely interesting for me and many others. Are you able to share some greater detail on here?

    Thanks,
    John




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    Apologies for the very brief reply. I was in a hurry!

    My case is a recent example. However there are a range of cases on rating and valuation all of which were drawn on in the recent case. The discretion of the valuation officer in choosing to consider an HMO as more than one council tax unit is based on:
    sharing of kitchens and bathrooms;
    an occupation by tenants or licensees that is not too transient;
    level of conversion.
    There are a number of cases where the sharing of either a kitchen or a bathroom by the occupiers was sufficient to justify the decision of the valuation officer to treat the property as multiple units. There is one amusing (if slightly horrid) case where the landlord tried to avoid this conclusion by placing portaloos in every room and stating that the bathroom facilities were not therefore shared!
    Transience is a bit less clear although it has been considered recently by the court of appeal in relation to a house boat. If tenants do not reside in the property for long then they may be too transient to justify the separation into multiple units. However, if you are granting ASTs then this is not likely to work.
    The amount of conversion from a conventional single unit also matters. However, given the normal approach of a local authority to a larger HMO and the works they tend to require this is again something that is rarely useful at the moment as almost any sizeable HMO has undergone some degree of works.

    The case recently turned on the argument that not all the tenants shared facilities as some had their own, that some occupiers (but not all) were very transient, and that only a small amount of conversion work had been done since the previous use of the property as a hotel. None of these arguments succeeded. They may have done on appeal above the Valuation Tribunal but my client did not want to spend that money and on balance I think he was right not to as the commercial realities simply did not justify it.
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    David Smith
    Landlord & Tenant Solicitor
    Anthony Gold Solicitors

    Find me on LinkedIn: uk.linkedin.com/in/dsnsmith

    All opinions are my own and do not reflect those of my firm. No comment made should be taken as legal advice and you should consult a solicitor or other legal professional for advice on your specific situation.

    Thank you David. Your wider explanation is appreciated.

    If what you have said is correct, and I have no reason to suspect that it isn't, then either I am completely missing something, or my previous understanding of the subject is totally and utterly turned on its head.

    Leaving aside the questions of transients and the degree of conversion, which I accept will be different on a case by case basis, and concentrating only on the bathroom and cooking facilities, you appear to be stating very clearly that:

    a) If bathrooms and kitchens are shared then each room will be separately assessed for Council Tax.
    b) If a room has its own bathroom and/or cooking facilities then it will not be separately assessed for Council Tax.

    This is completely the opposite of what I understood the position to be, and surely defies all logic. Is this really correct? If so, I and no doubt many others are heading for big trouble. I thought that a tenant had to be shown to be "self contained" to be separately assessed for CT, ie with their own bathroom and cooking facilities, but your expert opinion based on a real case suggests the complete opposite.

    I would like to return to your very interesting notes regarding the degree of conversion, as this is something I haven't seen raised before, but first I wanted to pin down this question of shared or integral facilities. Before I install expensive en-suite showers, toilets and washbasins!

    Confused? You bet.

    John
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    I think we need to take a step back here, so bear with me.

    Domestic council tax is levied on hereditaments. These are largely defined in the rating legislation and cases which pre-date council tax and through case law. I am not going to go into it here as it is pretty complex and has a lot of holes. It is probably easier is I simply talk about council tax units. 

    Local authority valuation officers (who confusingly work for the Valuation Office Agency or VOA) have (and have always had) a power to revalue council tax units. This works in two different ways:
    1. More commonly they can change the council tax band so that you pay more or (very occasionally!) less for a specific unit.
    2. Less commonly they can revalue by changing the number of units altogether so that you pay (usually at a lower band) for more units. 
    The net effect of either valuation type is generally to get more money from you!
    We are concerned here with the second type of revaluation which is also, luckily for me, more interesting legally. 

    The second revaluation type gives a discretion for a valuation officer to assess the unit and decide that actually it comprises of several units and thereby amend the council tax register accordingly. This has nothing to do with planning or HMO licensing or anything else we talk about here, it is a separate system. 

    The first scenario you describe is splitting a property into a series of self-contained units. If you do this the valuation officer could simply assert that each was a separate hereditament and change the register accordingly. This would not change the fact that you might also need an HMO licence etc for those units. 
    In the second scenario you state that there remains sharing of some kitchen and bathroom space. In this case the valuation officer can reassess the property because it falls within the council tax valuation definition of an HMO (not the same as a Housing Act 2004 HMO definition for licensing) because of the shared facilities and consider whether to still reassess as several units. 

    In both cases this revaluation must be reasonable and is discretionary (so they don't have to do it). The manner in which the valuation is carried out is set out in case law and I have referred to some of the considerations in previous posts in this thread. 

    The reason that this probably contradicts what you previously believed is that historically it has not often actually been done. Councils have simply ignored HMOs and not considered the extra Council Tax revenue they might be able to recover. This is changing a bit and more local authorities are directing valuation officers to consider revaluing properties. Therefore it is a growing issue.

    There are some things you can do to protect yourself depending on the way you let your property. However these are situation specific and come under the heading of advice (for which I charge!). 

    Your second question about amount of conversion is also pretty situation specific and would probably be an advisory issue as well. 
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    David Smith
    Landlord & Tenant Solicitor
    Anthony Gold Solicitors

    Find me on LinkedIn: uk.linkedin.com/in/dsnsmith

    All opinions are my own and do not reflect those of my firm. No comment made should be taken as legal advice and you should consult a solicitor or other legal professional for advice on your specific situation.

    Thank you David, that response is very clear and much appreciated. I am beginning to understand! I also took the opportunity overnight to search the Valuation Office Agency website and learn some more.

    What you have set out does not in fact contradict my previous understanding of the situation. It matches it. What did contradict my previous understanding was one of your previous posts where you say, about a number of cases:

    "where the sharing of either a kitchen or a bathroom by the occupiers was sufficient to justify the decision of the valuation officer to treat the property as multiple units"

    I think I may have read this the wrong way. Perhaps if the word "where" had been replaced by "whether or not" I might have been on board more quickly!

    I am very appreciative of your summary, and note with interest that you may have a strategy to deal with the situation! Before I employ you for specific advice, at what I'm sure will be a very reasonable fee(!) I would be very interested to know how others have dealt with it. There must surely be thousands of HMOs with ensuite bathrooms installed which, according to the VOA, may in many circumstances breach the requirements for a single dwelling CT assessment. Or are we just not telling them?!

    Thank you again, David.
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    Happy to help.

    I think the main reason that nothing has happened is that most local council tax authorities are a bit blind to the situation. Some are waking up now to the possibility of making more money by re-valuing HMOs but many have not yet thought about it. Additionally, up until now most HMOs have been converted family homes so they could easily be converted back which would then require them to be re-valued back the other way so the net gain was limited. As more properties are converted to HMOs over a longer term things will probably change.
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    David Smith
    Landlord & Tenant Solicitor
    Anthony Gold Solicitors

    Find me on LinkedIn: uk.linkedin.com/in/dsnsmith

    All opinions are my own and do not reflect those of my firm. No comment made should be taken as legal advice and you should consult a solicitor or other legal professional for advice on your specific situation.

    Hi guys, this is a very interesting discussion. If you have a standard four bedroom house and this is converted to a six bedroom HMO with a shared kitchen how much additional council tax might potentially be payable compared to a standard four bed dwelling? In this example lets assume that there were already two bathrooms and four en suites have been installed during the conversion. The kitchen remains the same and unaltered.
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    Rural Practice Chartered Surveyor. Experienced in estate management, residential investments, planning and development and rights for utility apparatus. All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    This is a bit of a piece of string question. The most likely scenario is that it will be re-valued as 6 council tax units. They will probably be band A. The exact amount payable will then depend on the council tax bands set by the local authority and then whether exemptions are available to the occupiers, for example if they are students.
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    David Smith
    Landlord & Tenant Solicitor
    Anthony Gold Solicitors

    Find me on LinkedIn: uk.linkedin.com/in/dsnsmith

    All opinions are my own and do not reflect those of my firm. No comment made should be taken as legal advice and you should consult a solicitor or other legal professional for advice on your specific situation.

    I would NOT take the risk of converting to an HMO or buying an HMO if it was possible that the council might choose to change the CT to per room rather than a whole property.
    Such doubts will cause LL not to invest in HMO's!
    This also prevents LL improving the HMO rooms to a better standard; such as installing en-suite bathrooms etc.
    How this assists LL to make DD investment decisions on HMO's I'll never know!!?
    How this assists tenants who are desperate for cheaper rental rooms I just don't know!?
    It should be the case than any HMO that a LL installs an en-suite bathroom should not face CT per room.
    Yes there will still be common kitchens and common dining and lounging areas; but en-suite bathrooms are surely something that a LL should not be penalised for installing.
    It does seem that councils are trying to disincentivise HMO's and yet rental rooms were NEVER more in demand; especially in London!
    I just know I wouldn't even consider HMO investment even if I could!
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