Council tax is the fiddly cost that so many of us forget about and neglect to factor into our monthly expenses. Yet it is a priority bill that could lead to expensive and damaging court proceedings if not paid.
Households across large parts of Great Britain saw their council tax rise by the maximum amount on 1 April, with three quarters of English councils with social care duties planning a five per cent hike, according to the County Councils Network (CCN).
With both tenants and landlords already struggling with the cost of living crisis, landlords and agents must know who is liable to pay council tax on any of their properties, and how much landlords will need to set aside if they want to keep their portfolio spotless.
Here, we’ll go through the questions that all landlords should be asking, getting to grips with what, exactly, their council tax obligations are and what those responsibilities mean.
Council tax is charged and is payable by whoever the liable party is, which is determined by reference to the Local Government Finance Act 1992 and Council Tax (Administration and Enforcement) Regulations 1992, as amended.
Many landlords are unsure about whether they are responsible for paying council tax or if it is paid by their tenants. In the majority of cases, there is a standard hierarchy to follow.
This starts with any adult over 18 years of age who is occupying the property on an individual tenancy agreement. So, if the landlord is not residing in the property they are not usually responsible for paying council tax.
The tenancy agreement should make it very clear who is responsible for paying council tax. Where it is the tenants’ responsibility, landlords should inform the local authority in writing when the tenancy starts and ends.
If there is a joint tenancy on the property, all the named tenants are responsible for council tax payments. If the landlord subdivides the property and lets it out to a number of tenants - a typical licensable HMO - the landlord is responsible for paying council tax.
A property should be exempt from council tax if it’s only occupied by full-time university or college students – if they have at least 21 hours of study, tuition or work experience. Student halls of residence are automatically exempt.
If a property isn’t exempt, some people, including full-time students, will be “disregarded” for council tax. This means the council tax is calculated as if you don’t live there and may mean that whoever in the house does have to pay the council tax may get a discount.
The list below gives the order of priority for who has to pay the council tax in a dwelling house. The person who falls into the highest category on the list is liable for payment.
- A resident freeholder
- A resident leaseholder
- A resident tenant
- A resident licensee
- A resident
- The owner (unoccupied property)
A resident is defined as a person aged 18 years or over who occupies the dwelling as their only or main home.
If the dwelling house is unoccupied, or the people there do not occupy the dwelling as their sole or main residence, then the non-resident owner will be liable. In certain instances, however, the owner is always the liable person.
Properties in England and Wales are assessed for council tax periodically by the Valuation Office Agency (VOA), which is a part of HMRC. Properties are categorised into bands from A-H (A being the lowest band) according to the location and type of housing. The council tax band is based on the amount the property could be sold for on the open market at the time of the rate valuation and the cost for each band varies by council.
Every property will be banded for council tax if it qualifies to be a dwelling (a self-contained accommodation used as a home). To be a dwelling, the VOA will look to see if it is either habitable or capable of repair.
In most circumstances, tenants in Scotland, England and Wales will be liable for paying council tax, which should be clearly stated in the tenancy agreement.
However, during periods when the property is unoccupied, or in the case of HMOs, when multiple tenants are living in the property, the landlord will be liable.
Generally speaking, responsibility is determined by a hierarchy of liability as stated above, which means it starts with the tenant and ends with the landlord.
It’s also important to note that in order to pay council tax bills, a tenant must be over the age of 18, which is one of the many reasons why landlords typically do not offer tenancies to people under that age.
Also, to reiterate, if your property is fully occupied by full time students then no council tax needs to be paid.
Landlords are not normally responsible for paying the unpaid council tax of their tenants.
In most situations, as long as the council tax payment obligations are stipulated in the rental agreement, it will be the tenant or tenants that have to pay.
Landlords should keep a record of this agreement in case there is any dispute. They should also notify the local council tax department in writing - email will usually be sufficient - when tenants leave and when new occupants sign a tenancy agreement.
As mentioned, a property is exempt from council tax if all the people on the tenancy are full time university of college students. However, if full time students share with two or more employed people, who aren’t full time students, they could be liable for council tax – unless they qualify as “disregarded” people for council tax exemption.
Looking for some more information on student tenancies? Check out our guide to successful student letting.
Do landlords pay council tax for HMOs?
For houses in multiple occupation (HMOs), or where multiple bedsits or rooms are occupied by separate individual parties, a single council tax will generally be applied to the property. In this situation, the landlord is responsible for paying the bill. This is something that all landlords letting HMOs should take into account when setting their rental rates and deciding how many rooms to let out.
Need more information? Take a look at our complete guide to letting an HMO property.
If any of their properties are unoccupied, the onus of council tax payment falls to the landlord. Historically, local councils made an allowance for a period of six months, where they charged landlords 50% of the full amount. Since 2013, the amount charged has been at the individual council’s discretion.
Since councils vary in their approach to empty properties and council tax, it is vital to contact the council directly to make sure that you pay the correct and full amount. In some cases, councils can actually charge extra council tax for empty properties.
This has led to issues in certain boroughs, particularly in those where empty houses are increasingly common and councils worry about the knock-on economic effect of empty dwellings.
In these cases landlords owning homes that have been unoccupied and unfurnished for two years or more can be expected to pay 150 per cent council tax.
Landlords pay the council tax during void periods, so managing their properties to minimise these periods will save a lot on paying this tax.
If the owner lives in the same property as their tenant, and this includes lodgers who share facilities with the owner, the owner will be liable for the council tax.
Substantially unfurnished or recently repaired properties can be exempt for six months in certain circumstances, although the final say will always be with the local council.
After this period, the landlord could be liable for a discounted rate of around 50% but as previously mentioned, this is very much up to the local council and local councils are not quite as forgiving as they once were because they need the money.
As also mentioned earlier in this post, a property which is occupied entirely by full-time students or school and college leavers is also exempt – although the students must first apply for this exemption themselves.
On application to the local authority a property may be removed from the rating list temporarily while under major refurbishment, that is when the property is completely uninhabitable. This is by no means automatic, but if your application is successful, no council tax will be payable while the property is off the list.
In limited circumstances the VOA may ‘delete’ a council tax band. This means that a property will not have a council tax band and the taxpayer will not pay any council tax until the property is entered into the list again following completion of work or service of a completion notice by the local authority.
If a property is occupied, it is generally assumed to be habitable and the band will not be deleted, even if significant repair or renovation works are underway.
If no one is living in your property, and it is either:
- in such poor state, that to repair it would give you a property of a different character, or
- undergoing a major scheme of works so that the whole property is now uninhabitable
Then you can make a proposal to have the council tax band deleted by using the “Challenge Your Council Tax band” page on the Gov.uk website.
Whether it’s an apartment, house, bungalow or bedsit, each property will fall under its own council tax banding. This is set by the Valuation Office Agency (VOA).
The valuation is based on what the property in question would have been worth on the open market on a certain valuation date established by the VOA.
There are eight bands that range from A to H, with H applying to the more expensive properties and A being the least expensive.
If you don’t know what band your property currently falls within, there is an easily searchable database.
Of course, things are a little more tricky in the case of flats. If a property contains several flats then each flat will have its own council tax band. This also applies to bedsits, but in the case of an HMO, the valuation office is more likely to ensure the same band is applied to the entire property. Find out more about the difference between an HMO and a bedsit.
If their property has moved into a new band and they feel a wrong decision has been made, landlords can appeal via the official gov.uk website.
Here, they will make a proposal to alter their property valuation if they feel it has been upgraded to a new band due to a rise in local house prices.
Legally, a new band can only be applied when the property itself or its surroundings have changed in some significant way, which includes demolition, renovation and conversion into flats.
It’s also worth noting that the VOA will only review the band when the property is sold or a new lease is granted (or extended).
Landlords should offer a written tenancy agreement to all prospective tenants, making it clear that council tax is payable by the tenant. This is in order to demonstrate to the council that the tenant is responsible for the tax and is aware of that. In other words, the tenant should be made aware of this liability before entering into the agreement.
In situations where the tenancy has not been surrendered, where the tenant leaves without informing the landlord, there will often be disputes between councils and landlords about who is liable for the council tax.
When tenants vacate a property without giving notice and the landlord applies for vacant possession, the landlord will most likely be billed for council tax, and whilst an appeal can be lodged, the outcome is generally always the same – the landlord ends up paying.
Councils are diligent about recovering unpaid council tax these days, so it is important to make sure that you have addressed your council tax liabilities correctly and don’t owe any outstanding payments.
Usually the council tax notices are sent to the rental property, so if you do not check your empty rental property regularly, you could find themself in court without realising it.
It does not pay to get into court battles with the council, unless you are very sure of your grounds. They have far more legal resources at their disposal than you have.
Council tax can seem to be a complicated business, but as long as you keep on top of it, always inform the council in writing when tenancies change, and make sure you know which of your properties you need to pay tax on, you will be fine. It may even motivate you to avoid vacant periods in your properties, wherever possible, so you don’t pay this tax.
Taxes are never going to be fun, but they can be straightforward and they don’t have to be a headache. If in doubt, always seek the advice of a tax specialist in order to uphold your responsibilities as a landlord.
For more information on the intricacies of tax that landlords need to negotiate on an annual basis, check out our complete guide to UK landlord tax.
Please note, this article applies primarily to the laws in England. It is not a definitive interpretation of the law. Every case is different, rules change over time and only a court can decide - always seek expert advice before taking action or not.
