Important proposed changes to Council Tax on HMOs in Wales: What landlords need to know
The Welsh Government is currently consulting on proposed changes to the way council tax is valued and charged for Houses in Multiple Occupation (HMOs). If these changes come into effect, there will be significant impacts on landlords of HMOs.
However, it’s important to note that the consultation and draft regulations aren’t entirely clear in parts. They leave unanswered questions that we and others are seeking answers to, so we've interpreted them as best we can. We will, of course, publish further developments as and when they emerge. We genuinely hope we have misinterpreted some of the proposed changes – read on to find out why.
Below, we outline the key points from the consultation and what they could mean for landlords.
1. Council tax liability to fall on the owner
The most significant change in the proposal is that liability for council tax on HMOs let under a single joint tenancy will shift entirely to the owner. This means that, under the new regulations, local authorities will no longer create accounts in the occupants’ names for HMO properties. Welsh Government suggests this change will reduce administrative burdens for local authorities.
For landlords, this is a crucial change. No matter the occupation contract or the occupants, if it’s a HMO, the responsibility for paying council tax will rest with them, the owner.
2. Full-time student occupants – Council Tax exemptions
For properties entirely occupied by full-time students, we expect that the full council tax exemption will remain in place. The primary difference is that landlords will now be responsible for providing council tax exemption certificates for their student occupants to the local authority. If these certificates are not submitted, the council tax bill will fall on the landlord.
While landlords are already often asked to submit these certificates, many know that failing to do so will see Cardiff Council set up an account in the tenants’ names. This proposed shift means it will be more important than ever for landlords to handle this paperwork diligently. If they don't, they will end up footing the bill.
3. Mixed occupancy (students and non-students) – increased liability for landlords
Properties with a mix of student and non-student occupants will present a new challenge. In this situation, a full exemption won’t apply as the property isn’t occupied exclusively by full-time students, so it’s likely that landlords will need to factor council tax into the rent they charge.
Landlords keen to avoid footing the bill or including council tax within the rent are going to need to be more diligent over who is occupying. We can already hear the “to confirm, you’re definitely all full-time students?” question ringing around.
4. All HMOs to be valued and billed as one dwelling
Currently, the Valuation Office Agency (VOA) has the discretion to value and bill individual rooms within HMOs separately, which can result in higher overall council tax charges. Living in an HMO that is valued in this way proves to be very expensive for the occupier. The proposed changes would standardise the treatment of HMOs, with all HMOs being valued and billed as a single dwelling.
This is widely seen as a positive change as it will make living in HMOs that are currently valued room-by-room considerably cheaper – something that is vital in the current climate, when so many people rely on HMOs.
5. Aligning the definition of HMOs for Council Tax with the 2004 Housing Act
Another welcomed aspect of the proposal is the Welsh Government’s intention to align the definition of an HMO for council tax purposes with the definition used in the Housing Act 2004. This definition is already familiar to landlords from its use in HMO licensing and other regulations.
This change simplifies things considerably and will mean fewer grey areas when it comes to what constitutes an HMO for council tax purposes. It's a move that many in the sector, including ourselves, have been calling for over several years.
If this and the proposal to value and bill all HMOs as one dwelling were the only two proposals the consultation was making, we’d be jumping for joy.
What the future may hold
The proposed changes are currently at the consultation stage, so they are not guaranteed to be implemented. However, we at CPS Homes will be ready to adapt and protect our clients’ best interests if or when they do come in, by:
- Familiarising ourselves with the current Council Tax band for your property and what it means for the current annual council tax bill is, as we may need to factor it into the rent.
- Continuing to inform Cardiff Council of each and every student occupant, in order to prevent unexpected tax bills.
- Reviewing our occupation contracts to ensure council tax is clearly addressed, particularly for mixed-occupancy properties.
- Assessing and advising on any necessary rent adjustments to account for potential council tax liabilities.
Have your say
The consultation is open for all stakeholders to have their say. Welsh Government are accepting comments up to 26th November 2024. Their website explains how you may submit a response to the proposals.
As always, we’ll be keeping an eye on this consultation and will provide updates as soon as further information becomes available.
The information contained within this article was correct at the date of publishing and is not guaranteed to remain correct in the present day.
