The government has finally seen sense and decided to end the unfair and discriminatory practices of the VOA (Valuation Office Agency) in arbitrarily disaggregating some HMOs into individual units for Council Tax purposes. Congratulations to member and local activist, Daryn Brewer, for championing this issue at the highest levels and achieving this excellent result.
Disaggregation – What is it?
Take as an example, an 8-bed HMO in Southsea. For council tax purposes, it is treated as say, a Band E property and the appropriate rate for that band is paid each year by the landlord.
At some point, probably 4 or 5 years ago, the VOA started looking at properties like this one and deciding that as they were all separate bedsits, completely self-contained, within the building, they could be treated as separate dwellings and each subject to a Band A council tax levy.
So, in this example, using current Portsmouth rates – the Band E payment would be £2,420.93p whereas 8x Band A would net £10,564.08p – a difference of £8,143.15p.
This may all sound logical and sensible – but with councils facing every reducing budgets and impossible to achieve housing targets, suddenly having a solution which can, in the one example here, increase the number of homes in the city by 7 and increase council revenues by over £8,000, it is perhaps not surprising that a number of councils encouraged the VOA to apply this logic to more properties and the VOA, presumably with their own targets to meet, appear happy to have obliged.
What Was The Problem
We have a lottery where HMO A is disaggregated and HMO B is not – so landlord A has to charge rents which recover the additional £8,000 (in our example) and landlord B can offer lower rents and be more profitable. The issue has been that no one knows when a property will be disaggregated, why it was selected to be or what rules are applied.We have seen properties where no dwellings are fully self-contained disaggregated, those with en suites and others not.
You could argue that as long as the rules were made clear and all properties were treated equally then disaggregation would be good – but that misses the key issue which we have been arguing since day 1.
In our example, the landlord paid the council tax due – true, it was probably accounted for when the level of rent was set – but it was the landlord who paid and the tenants, who in HMOs are often vulnerable and or least able to withstand a higher tax burden, did not.
Once disaggregation was imposed on a property, the tenants became liable for council tax – true, in our example they would typically claim a single person discount of 25%, but that still meant that those least able to afford it were hit with an unexpected tax bill of nearly £1,000 a year.
What makes this worse is that disaggregation was for some bizarre reason, applied retrospectively – so tenant Ms. X who lived in the property for the last 2 years and moved out in January believing she had paid everything she should and who had now moved on to the next stage of her life, perhaps somewhere else in the country, would suddenly be landed with a bill for council tax for perhaps the whole 2 years she lived in the property. How does that make any sense?
What Has Changed?
Well, full details here but in summary, "The government will amend legislation to ensure HMOs are valued as a single property for the purposes of council tax" and "The government believes in the principle that any property with access to shared facilities, as included in the Housing Act 2004 definition of HMOs, should be valued as a single property for the purposes of council tax valuations. This will ensure a consistent outcome for the valuation of HMOs."
And when will it happen?"The government will lay regulations later this year, with the intention that the policy change comes into force before the end of 2023."
Are We Happy?
We know of several landlords whose properties were disaggregated and taxes were applied retrospectively. In each case, the landlord applied for a rebate and was repaid the council tax he had paid for the retrospective period, then the tenants who were resident at the time were billed for council tax that was due for their room for the period they lived there. Knowing how unfair the retrospective demand was and how unable to afford it some former tenants were, landlords paid the historic council tax bill for those tenants who could not afford to do so. Yes they had their rebate, but as in the example we used earlier, that was typically enough to cover the bill for a couple of rooms, so landlords dug into their own pockets to make up the difference and save the tenants hardship.
Depending how the policy change comes into effect, if the former disaggregations are reversed those landlords will suddenly have bills for the amount they were previously rebated and will have zero likelihood that the former tenants will use their rebates to repay the landlords… Our hope is that disaggregation disappears at the end of this year and no retrospective adjustments take place.
Many landlords also have concerns about the way the government statement is written in that it may lay the ground for HMOs to be banded differently to identical family houses. Member Warren Somerset said, "if an HMO has not been re-banded why would the valuation office need to identify them as surely they already have a band appropriate to the property value. So I suspect more pain coming down the track as a general HMO band won't work it's probably going to be tied to occupancy i.e. size of HMO as 4 bedroom won't be paying the same as a 7 bedroom?" and Alice Ibbotson added, "I must admit I don't think that's the end of it. I think they will introduce a separate band for HMOs but it can't be any worse than banding all rooms and to be honest I personally think HMOs should pay slightly more (probably an unpopular opinion). Problem is the cost of it will just get filtered down to the tenant!"
So well done Daryn and all those who fought so hard against this unfair tax interpretation, but please don't hang up your hats yet as we fear this may just be round 1....