Council tax valuation of Houses in Multiple Occupation (HMOs) March 2023

As the consultation says, latest statistics suggest that there are almost half a million Houses in Multiple Occupation (HMOs) in England. The LGA has heard from councils that HMOs can frequently require more council services, such as refuse collection and increased enforcement activity. This has led many councils to introduce Article 4 Directions which have the effect of limiting the numbers of HMOs.

Based on this, we consider that the Government ought to consider how to ensure that these HMOs make a fair contribution to the cost of local services. The Government proposes that HMOs should be banded as one property and have one council tax band, other than in exceptional circumstances. It is not clear how many of these 500,000 properties this would affect. However, any aggregation, particularly of larger properties, would lead to a loss of council tax income and this should be compensated for on an ongoing basis.

HMOs play an important role in the housing market across the country. The Government should be aware that the proposed changes may have an impact on or disruption to the HMO market, both in terms of properties coming forward and being improved or upgraded. HMOs also offer accommodation that is typically cheaper than other private rental options and often house vulnerable tenants. Notwithstanding our view that HMOs should make a fair contribution to the cost of local services the Government should be mindful of the potential impact of these proposals on the residents of HMOs. Appropriate transitional arrangements, including ensuring there is sufficient notice for any residents affected, could help to mitigate the impact of the proposed changes.

If the Government does decide to implement its proposals, it should ensure that any aggregation of HMOs arising from this consultation does not reduce councils’ entitlement to New Homes Bonus purposes.

Question 1: What are your views on the way that HMOs are currently valued for council tax? 

Current valuation depends on the Valuation Office Agency following its rules which depend on establishing what is a “dwelling” and is therefore liable for council tax. This is set out in its practice note 6 which gives a list of factors which are likely to lead listing officers to the decision to aggregate or not to aggregate the dwelling for council tax purposes. These include the degree of adaptation, the number of rooms in the property, and the presence or not of self-contained bathroom and toilet and cooking facilities.

Question 2: What are your views on the extent to which HMOs are currently not aggregated for council tax purposes?

Question 3: In your view, are there any particular types of HMOs that are more, or less, likely to not be aggregated? Please provide evidence where possible.

There are no statistics available on the numbers of HMOs which are aggregated for valuation purposes. However, based on the statistics above and the VOA manual, it would appear that the HMOs subject to licensing are those which are least likely to be aggregated as they have five or more occupants from separate households and do not have self-contained facilities. According to the latest statistics quoted above around a quarter of HMOs are licensable.

Question 4: What are your views on the government’s objective to deliver consistency of outcomes to the council tax valuation treatment of HMOs and to ensure that HMOs are banded as one property and have one council tax band, other than in exceptional circumstances?

We consider that before considering this change, the Government should establish the number of HMOs which are aggregated for council tax purposes and those which are not and establish the impact on council tax income and compensate councils for this loss. This could be a significant change for some urban authorities.

As said above, we consider that the Government should consider whether making this change will mean HMOs making a fair contribution to the funding of local services. One idea if the proposal goes ahead would be a compensation methodology based on the number of people rather than council tax bands.

Question 5: Do you have any preference as to how to deliver the government’s objective to ensure that HMOs are valued as one dwelling and, if so, why?

Both options would require listing officers to list HMOs as a single dwelling other than in exceptional circumstances. We do not have a preference between the two.

Question 6: What are your views on defining HMOs as set out in the Housing Act 2004?

• As the consultation states, using the Housing Act definition would align the definition across existing housing legislation and allow exceptions to be defined.
• We consider that self-contained flats should be excluded from the definition as they are identifiable as separate dwellings. We also agree that properties covered by section 257 should not be included, as this could mean that a converted block of flats with self-contained flats inside may only have one council tax band for the building.
• We note that Schedule 14 to the 2004 Housing Act sets out exemptions to the definition of HMO – these include buildings managed by public sector bodies including local authorities, housing associations and co-operatives. We consider that these exemptions should continue to apply to any definition of HMOs.

Question 7: What are your views on defining HMOs using the definition in the Council Tax (Liability for Owners) Regulations 1992?

This definition does not distinguish between types of HMOs or whether the property is in the public or private sector. If this definition were to be adopted it would be necessary to define a set of exemptions.

Question 8: In your view, is there any non-HMO accommodation that may be caught by either of the proposed definitions?

Question 9: Are there any other definitions that may be more appropriate for the purposes of identifying HMOs in the context of establishing a council tax band?

We have not heard of any other property which could be caught but would request that the government look carefully at responses to the consultation. We do not have any other definitions to suggest.

Question 10: Are there any exceptional circumstances or types of HMO accommodation that in your view should not be covered by these proposed changes and, if so, why would that be the case?

As suggested in our answer to question 6, the following should not be covered:

• Self-contained accommodation;
• Converted blocks of flats;
• Property exempted under Schedule 14 of the 2004 Act, including local authority property

Question 11: Do you agree that, where separate areas of self-contained accommodation can be clearly determined within an HMO, the Listing Officer should be able to band each self-contained accommodation as having its own council tax band?

As set out in our answers above, we agree that where separate areas of self-contained accommodation can be clearly determined within an HMO (for example floors) the Listing Officer should continue current practice where each area would have its own council tax band.

Question 12: Should the changes be limited to HMOs with fewer than a certain number of separately let rooms?

Yes, there should be a limit on the number of rooms this proposal applies to, in order to ensure that very large HMOs should not pay only one council tax.

Question 13: Are there other approaches that you think should be considered to achieve the same outcome?

With reference to other approaches, we repeat our suggestion that the Government first carry out research into how many HMOs are aggregated and the impact of this proposal on council finances.

Question 14: When implementing the changes, do you agree that this should be done through the formal proposal route so that HMO landlords have the opportunity to make a proposal to alter their band?

Yes, if this proposal is implemented, HMO landlords should make a formal proposal to the VOA to alter their band. The VOA should keep statistics as to how many proposals are dealt with through this route, so when taxbase statistics are considered for New Homes Bonus purposes that any changes arising from this consultation should not be deducted from the total net change which would count for New Homes Bonus purposes.