Good morning guys, I stumbled on this piece of future information on council tax this morning, thanks to Council Tax Guy on Twitter and thought my current and future HMO landlords may find the views interesting? I'd be interested to hear your views? And as an HMO specialist I may be able to help further.
A lot has been made about recent calls for landlords to be treat as businesses for the purpose of House in Multiple Occupation (HMO) property rentals but how might it affect you as landlords?
The changes are only a suggestion at present but with the localisation of Business Rates it may well be that changes are made to allow the local authorities to raise and keep more monies.
Current situation regarding Council Tax and Business Rates
All residential properties are currently banded for Council Tax purposes , rather than Business Rates – this includes HMO’s. By being banded for Council Tax purposes the property is entitled to any discounts or exemptions which apply.
The average Band D Council Tax band within England for the 2016/17 year is £1,530 – With Cambridge band D coming out at £1,597.54 - this means that any Council Tax charge due for a landlord is restricted to no more than £30 per week (on average) £30.72 in Cambridge.
A large proportion of HMO’s are student accommodation and as such the property is subject to a Class N exemption. This currently results in no Council Tax being due for the period the students are in occupation - this of course means that you can only have students in these HMO's - In Cambridge I am currently 50/50 filling my HMO's with students and professional workers and have to decide which HMO is suited for which as obviously I cannot put 1 professional worker in with 5 students as that one would be responsible for paying the entire council tax (they do get a 25% reduction).
How would the suggested changes affect property ?
Business Rates are (in general) based on the open market rental value of a property. Residential property rental rates are not directly comparable however the average rent for a room in a HMO is £77 per week – for a 4 bed property this is roughly rent £16,000 per annum. - ok so these figures are well of for Cambridge as my average room is £125 per week meaning the average 4 bed property is £24,000 which is some significant difference but you get the gist.
Small Business Rates Relief (SBRR) currently exempts some smaller properties from Business Rates. From April 2017 a business property with a rateable value of less than £12,000 will receive full rates relief. Above this figure the amount will be tapered on the next £3,000 however properties above £16,000 will not be eligible. This means that SBRR would not apply to the average HMO property. It should also be noted that a landlord with more than one property would likely not be eligible for SBRR regardless of the value of those properties.
A property worth £16,000 would be assessed using the standard multiplier – this has not yet been confirmed for 2017/18 however it would not be expected to be too dissimilar to the current rate of 49.7p This would incur business rates of £7,900 per annum or £152 per week – the equivalent of 2 rooms worth of rent each week or an average increase of £38 per week per tenant in rent, considerably more for Cambridge and lets remember that students only receive a capped amount and are indeed our future?
Conclusion
If Business Rates was applied in its current format, without any adjustments, then it’s clear that landlords would be forced to up rents on a property. Significant extra charges would have to be recouped. Many legislative changes would be required and the figures should be a worst case scenario but only time will tell as to what the situation may be.
My Concern
If Business Rates are applied and on top of that tenant fees are abolished - thus both causing rental increases then how is the average Joe going to be able to afford to rent in this beautiful city? I know 100% this will not effect properties from being occupied as I have a massive back log of tenants ready to fill properties however I firmly believe in offering the right rates!
HMO Advice?
I'm here to help - should you need free advice or indeed would like to let your property through somebody that knows, please do feel free to get in touch. Lets grab a coffee and see where I can help you next ;-)
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