The ‘Hidden Toilet’ Tax for HMO Properties – New Council Tax for HMO Tenants
Written By
Alan Murdie

A policy of re-banding single bedrooms in shared houses as the equivalent of single flats practiced by the Valuation Office Agency (VOA) is hitting tenants on low incomes.

This policy known as ‘disaggregation’ is designed as a method of increasing tax yields on what is otherwise a single shared house.

Under disaggregation every en-suite bedrooms in a shared house is re-classed as a Band A council tax flat – even when lacking basic facilities for living such as kitchen and cooking facilities.

Using it the Valuation Office Agency is turning shared houses and  House of Multiple Occupation (HMOs) into  lots of little taxable units – and making each person occupying a bedroom liable to tax, whether as a tenant or licensee.

As a result multiple council tax bills can then be sent to the property by the Council – one for each bedroom – making each occupier liable.

It is a legal fiction which is increasingly hitting both landlords and tenants, especially the poorest tenants in houses in HMOs.

The toilet tax? Or poll tax?

It is making individuals liable in a way never intended originally by Parliament.

This undeclared VOA Policy adds up to

  • Making en-suite rooms  taxable–  a toilet tax
  • Treating bedrooms as single flats – even if they lack cooking facilities;
  • Destroying HMO and shared house status; ignored
  • Penalising single tenants in shared houses
  • A backdoor method of bringing back poll tax for the poorest
  • Massively hiking up taxes on what have been constructed as single properties

What is the policy behind this?

The idea behind this seems to be to get four, five six or more council taxes being paid out of just one property, despite the property being constructed and operated as a single house, not a collection of flats.

Thus it is a state-backed tax ruse penalising some of the poorest tenants hitting landlords and tenants alike. The self-contained element requirement for a taxable dwelling is ignored, as is the position of tenants. Typically it is hitting HMOS where landlords have arranged matters so a single council tax bill is paid on the property - the tax being recouped in the rent or rental charge - so tenants pay twice.

The result – more pressure on housing

The result, unfortunately, in too many cases, is that tenants are driven out, unable to meet both rent and council tax. This leaves the room empty and the landlord liable to pay

Thus VOA policy is making shared living unaffordable, driving tenants out of properties and forcing landlords in some cases to close down HMOs altogether as the level of tax becomes too high for everyone.

A number of such cases where HMO properties have been re-banded have occurred in West London and other parts of the country with this result.

Parliament did not intend this

Arguably, when creating the council tax in 1992 Parliament did not intend this result when it introduced the Local Government Finance Act 1992.

In particular, the VOA ignores the existence of the  Council Tax (Liability of Owners) Regulations 1992 SI 551. These regulations listed a number of situations where the owner pays, for examples for hostels, certain shared accommodation and properties typically operating as HMOs.  

Parliament enacted these regulations as a matter of convenience for all, avoiding problems attaching to multiple billings of properties where residents might regularly change, and to avoid imposing liability on people on low incomes. One bill is paid, by the owner, treating the HMO as a single house.

However, the VOA and local councils are shutting their eyes to them, imagining and pretending these don’t exist and routinely ignoring legal arguments against it, a practice continued in appeals by the Valuation Tribunal which tends invariably rubber-stamp VOA decisions despite the obvious injustices. Also being ignored are all court decisions and interpretations of the law which indicate this policy is wrong in law.*

A lack of logic and justice

What it reveals is a complete lack of joined up thinking or even a proper application  of the law or even logic.

In almost every case, it would be impossible to live in a single room because of a lack of cooking and in some cases washing facilities. Basically, Parliament did not intend people to live in toilets.

However, to avoid such arguments the Valuation Office Agency has adopted a simple approach to preventing tenants from appealing against disaggregation decisions made on their bedrooms - it  never tells them what it is doing in advance.

This is because to inform tenants  would generate a right of appeal. So first thing a tenant knows about it is when they are suddenly served a bill.

Further fuelling the grievances in this area is the failure to clearly and adequately explain the reasoning in decisions in letters issued to them as taxpayers and members of the public when the VOA is challenged

Numerous factors can contribute to this, reflecting the fragmentation of the decision-making process to production errors arising from churned-out letters using the cut-and-paste method of creating and answering correspondence. All can lead on occasion to the issue of seriously defective decisions by the VOA, omitting vital points and information.

Discrimination issues

Often landlords and tenants point to other HMOs, situated in the same Billing Authority area, which appear to be treated differently, fuelling resentment and suspicions of discrimination.

There are many unanswered questions and issues here with what the VOA is doing – not least that Parliament never intended this result with the Local Government Finance Act 1992. In this regard the Valuation Office Agency also seems adept at avoiding attention, with the official responsible for the change seldom available to contact, even if an appeal does occur (usually by the landlord who does not want to see tenants made liable in this way).

This is damaging to the image of officialdom. Central government, local government and the Valuation Office Agency are increasingly all perceived as working in a collective agenda against them.

Finally, it fails to deliver the imagined tax returns which the VOA seems to imagine – tenants and licensees can’t afford the tax and typically move out, leaving the local authority to try and trace them. Often, they have to write of the tax, or if the tenant is found, grant a discretionary reduction. And if  that continues it will put up the overall tax  council tax bill  for everyone.

To be continued…

*See for instance Woolway v Mazars [2015] [2015] UKSC 53 definition of a hereditament or chargeable property; Corkish v Wright [2014] EWHC 237 ; Re A dwelling in London [2015] RVR 169 and on abuse of discretion see Associated Provincial Picture Houses v Wednesbury Corporation [1948] 1 KB 223.

Disclaimer: This blog is for general information only.
Nothing on this blog constitutes formal legal advice or gives rise to a solicitor-client relationship.
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