Leeds HMO Lobby

National HMO Lobby

National HMO
Lobby

Home
What is a HMO?
Local HMO Plans
Ten Point Plan

Lobby
Aims
Constitution
Members
Regions
History
Papers

Lobbying
National Developments
Sustainable Communities
Use Classes Order
HMO Licensing
Taxation of HMOs
Students & Community

Contact
National HMO Lobby
Links

Taxation of HMOs

Taxation for national government is levied on persons (Income Tax) and on goods & services (VAT or Value Added Tax). Taxation for local government is levied on properties (what used to be called the Rates). Properties are divided into two kinds, domestic and business (under Section 66 of the Local Government Finance Act [1988]). Domestic properties pay Council Tax and business properties pay Business Rate (under the provisions of the Local Government Finance Act [1992]). In both cases, tax is normally paid by the user of the property – thus, where a property is rented, tax is paid by the occupant, not the owner. Some residents of domestic properties are exempt from Council Tax, including full-time students, student nurses, the mentally impaired, soldiers, diplomats. Thus, HMOs (houses in multiple occupation) are liable for Council Tax. This is payable by the occupants – but if they are students, for instance, then they are exempt. In this case, no tax is paid on the HMO.

The National HMO Lobby argues that this situation is unjust, for three reasons.
(a) The occupancy of student HMOs is (on average) double that of the average household. Such HMOs therefore make higher than normal demands on local services – but make no contribution to their costs.
(b) The revenue lost to local authorities by Council Tax exemption is reimbursed by national government. But this reimbursement is drawn from general taxation – which in turn is paid by those who have already paid Council Tax.
(c) Many local authorities argue that they are not fully reimbursed (Canterbury estimates that it loses £200,000 a year in this way).

There are three ways in which this situation could be remedied.
(1) Exemption from Council Tax could be withdrawn from some (or all) of those currently exempt. This has the virtue of the 'polluter pays' principle. But it is easily (mis)represented as (for instance) 'anti-student'.
(2) Responsibility for Council Tax could be shifted from occupants to owners (landlords) in the case of HMOs. This puts responsibility for the Tax on those who are making the money. But it makes HMOs unique among all other properties.
(3) HMOs could be reclassified as business properties, not domestic. This reflects the reality that HMOs are businesses, with a high turnover of occupants (like hotels); and it makes landlords responsible for paying Business Rates.

The National HMO Lobby has adopted the final strategy as its third objective. The Campaign for a Sustainable Canterbury launched an e-petition to this effect, on the 10 Downing Street website, in the summer of 2007. The petition read as follows: "We the undersigned petition the Prime Minister to Make Landlords of HMOs pay Council Tax or Business Rates. CaSC - Campaign for the Sustainability of Canterbury Communities advocates a change in the law to make landlords of HMOs pay Council Tax or Business Rates. HMOs (Houses of Multiple Occupation) occupied by full time students do not have to pay council tax yet the tenants make more demands on local services than when it was a family home - the average household is 2.3 persons but the average HMO is at least twice that! In University towns student HMOs create a loss of tax revenue. It is unacceptable that landlords making very large profits should not pay for services which their tenants enjoy as much as any other citizen! We could have more community resources if this deficit was put back into the public purse! The National HMO Lobby advocates amendment of Section 66 of the Local Government Finance Act (1988) such that HMOs no longer qualify as domestic property and thereby become subject to Business Rate-Landlords can't have it both ways!"

On 29 August 2007, the government responded as follows: "All property is assessed for taxation on the basis of its primary usage. Where it is used as a person's permanent residential accommodation it is classed as domestic and subject to the council tax. All other property, apart from certain exempt classes like agricultural premises, is treated as non-domestic and is subject to business rates.
Houses of multiple occupation (HMOs) are treated as domestic property and are subject to council tax. However, it is the owners of HMOs, not the residents, who are liable for council tax. The Government has no plans to make owners of HMOs liable for business rates. To do so would mean treating them differently from other domestic property.
Properties occupied solely by students, regardless of whether it is a HMO or not, are exempt from council tax. This exemption is designed to benefit students, not landlords, because, in general, students are not normally entitled to income related benefits such as housing and council tax benefit.
The distribution of formula grant to local authorities in England takes account of the circumstances of each authority's area and its relative ability to pay council tax, expressed in terms of the council tax base. The calculation of a council's tax base does take account of exempt student properties. Other things being equal, the smaller the council tax base of a council's area, the larger its formula grant. This effect is modified, however, by the application of grant "floors"; that is, a guaranteed minimum percentage increase in grant each year on a like-for-like basis."

The difficulty with this response is that the reality is that very few HMOs are occupied as 'a person's permanent residential accommodation.' The great majority are explicitly occupied on a temporary basis (like student houses).

National HMO Lobby
email: hmolobby@hotmail.com website: www.hmolobby.org.uk