What is the Council Tax?
Richard Price: The Council Tax was introduced on residential property in England, Wales and Scotland in 1992 (to replace the unpopular Community Charge (“Poll Tax”) so that local authorities can fund the local services they are responsible for providing. Properties are assessed by ‘band’, with the highest rated properties liable for higher Council Tax payments.
Q: How are properties valued for Council Tax purposes?
RP: The Valuation Office Agency (VOA) values properties for Council Tax purposes based on the amount which the property would have sold for on the open market by a willing vendor on 1 April 1991, even if the property was constructed or adapted after that date. Once the property has been allocated a value it is then placed in one of eight bands (A-H).
There is a searchable database of every property in England and Wales and the VOA Council Tax Manual provides detailed guidance to Council Tax valuation officers to reach a decision about applying Council Tax bands.
Q: How is a property assessed if it contains a number of flats?
RP: Each living space within a single building occupied exclusively by a separate household usually has its own Council Tax band.
For example, in the case of a house converted into self-contained flats, each flat will have its own Council Tax band.
The same will be the case for bedsits where the tenant has exclusive use of facilities, even though those facilities may be outside the door to the bedsit.
However, in the case of an HMO where the tenants are sharing facilities the valuation officer is likely to apply a single band to the whole property.
Q: Who decides when a property has entered a new band? How is this decided?
RP: When a property remains a single property but is improved in other ways (e.g. an extension is built), the VOA will review the existing band of that property when it is sold or a lease is granted or extended. In certain circumstances the owner of the property may challenge the valuation band by making a “proposal” to alter the Council Tax valuation list. This will happen when there has been a material increase or decrease in value of the property. The change in value has to be as a result of the circumstances of the property, not simply because of a rise or fall in local house prices. These circumstances include: demolition of part of the property, physical changes in the area which could affect the value of the property, and conversion of the property into flats.
Q: What is the procedure for challenging a Council Tax valuation?
RP: If the owner receives a notice from the Listing Officer advising him that they have altered the entry for the property in the Council Tax Valuation List, the owner has six months to make a proposal if he does not agree with the change. If the Valuation Officer does not agree that the property should be rebanded the owner has a right of appeal to the Valuation Tribunal. From 1 April 2008, changes have been introduced to the way Council Tax banding appeals are made to the independent valuation tribunal. This new process is called Appeals Direct.
A person who has challenged their Council Tax banding, and received a VOA Listing Officer’s Decision, may appeal direct to the independent valuation tribunal if he/she does not agree with that decision. There may be other circumstances in which the owner has a genuine reason to believe that the property is in the wrong band, in which case they should contact the local Valuation Office who will review the banding and decide whether there is a genuine need to change it.
Q: Who is usually liable to pay Council Tax, landlord or tenants?
RP: For the majority of residential let property the Council Tax liability falls to the tenant, however in regard to Houses in Multiple Occupation (HMO) landlords are liable.
Local councils use a list, called the ‘hierarchy of liability’ to decide who is liable to pay Council Tax on a property. For example, in occupied self-contained flats or houses, the tenant is normally liable for Council Tax. Where there are two or more tenants living together on a joint tenancy they will be jointly and severally liable for Council Tax.
The tenancy agreement should make it clear where liability lies. Landlords should notify the local council of the name of the tenant(s) and when he/she moved in. Certain tenants may qualify for exemptions or discounts because of their circumstances but they will have to notify the council of their status.
When the tenancy comes to an end, the liability for Council Tax will revert to the landlord until a new tenant is found.
Q: I own an HMO. Who is liable for Council Tax in this situation?
RP: In a House in Multiple Occupation (HMO) containing bedsits or where tenants are paying rent for individual rooms on individual tenancy agreements, it is the landlord who is liable to pay Council Tax. Rent should be set to take account of the amount the landlord must pay for Council Tax.
If the Council Tax increases, this does not create an automatic right to increase the rent. Rents cannot usually be increased more frequently than once a year. A landlord can include a term allowing increase of Council Tax element in line with Council Tax rise in the tenancy agreement. In an HMO where the tenants are renting the house on a joint tenancy as a group they will be liable to pay the Council Tax unless there is a clause in the tenancy agreement to say otherwise.
However, it is worth noting that some local authorities still differ in how they ￼classify HMOs. This means that HMOs may be deemed either as a single dwelling or a number of separate units.
Clearly, this complicates the matter of liability for landlords. In some areas buildings that had previously been treated for council tax purposes as single units (for example HMOs) have been disaggregated and reclassified as multiple units.
We have raised this anomaly (as well as the inconsistency in approach to exempting unfurnished properties) with the VOA and HMRC and we are calling for improved guidance for local authorities and greater harmonisation of the way the rules are applied.
Q: Are there any properties that are exempt from Council Tax?
RP: Substantially unfurnished or recently repaired properties can be exempt for six months. In addition, a property which is occupied entirely by full-time students or school/college leavers is also exempt – although the students must apply for this exemption.
Q: Are there other discounts available on Council Tax?
RP: A single resident will have a reduction of 25 per cent in their Council Tax bill. Sometimes although there may be more than one person living in the property, a single person discount will still apply: if any of the residents are under 18 or are only visiting or staying in the property temporarily they are ignored for Council Tax purposes. So, a single parent with two children will count as a single resident. Certain other people are disregarded when calculating whether a single person Council Tax discount applies, including full-time students and carers. If a property is occupied by a mixture of students and other adults then the students will be disregarded when calculating the number of residents.
Q: My property is empty. Do I have to pay Council Tax on it?
RP: The Council Tax payable on vacant properties will depend on whether or not the property is furnished or unfurnished. On a vacant furnished property, the landlord is liable to pay Council Tax on the property at a discounted rate of up to 50 per cent. However many local authorities apply a lower rate of discount in order to deter people from keeping properties empty. A vacant and substantially unfurnished property is exempt from Council Tax for up to six months, following which if it is still vacant the landlord will be liable at the discounted rate of up to 50 per cent. There is no legal definition of ‘substantially unfurnished’ but in practice many local authorities regard it as meaning a property which has insufficient furnishings to enable somebody to live there.