Landlords and tenants are being warned that Government plans to scrap council tax on residential properties and replace it with business rates will lead to a hike in rents.
The Valuation Office Agency (VOA), the government body that sets business rates, is currently considering plans to class Houses in Multiple Occupation (HMOs) as businesses rather private residences for the purposes of property taxation.
Adam Rock, partner and head of rating at Bruton Knowles, said such a move would leave HMO tenants, many of whom are students, out of pocket as higher business rates charges would have to be recouped by landlords through increased rental fees.
He said: “All residential properties, including HMOs and private rental properties, are currently banded for council tax purposes, rather than business rates, which means they are eligible for any discounts or exemptions that apply.
“The average B and D council tax band in England is £1,530, which means that any landlord charges are restricted to no more than £30 per week, on average.
“However, a four-bedroom property with an annual rental income of £16,000, based on an average rent of £77 per week for a room in a HMO, would incur business rates of £7,900 per year or £152 per week, which is equivalent to two room’s worth of rent each week or an average increase of £38 per tenant in rent per week.”
Under the Government’s Small Business Rates Relief (SBBR) scheme, smaller commercial properties are exempt from paying business rates. But according to Mr Rock, the relief would not apply to the average HMO property.
“As of this month, a business property with a rateable value of less than £12,000 is entitled to full rates relief,” he said. “However, properties with a rateable value of £16,000 or more are not eligible for the relief. If the same system is applied to HMOs, the majority will have to pay business rates.
“Landlords with more than one property would also not be eligible for SBRR, regardless of the value of the properties.
“At present, the switch from council tax to business rates for HMOs is only a proposal but with local council’s soon to keep all of the money raised from business rates as part of the Government’s localisation agenda, I wouldn’t be surprised if the changes are introduced in order to help boost local council coffers.
“Such a move could pose a number of issues, not least putting upward pressure on rental levels and in doing so making HMO development schemes less attractive to developers.
“The VOA should think long and hard before making a final decision.”