Changes To Council Tax Rules Adds Costs For Landlords

UK Landlords are no doubt aware that local authorities have the discretion to charge full Council Tax on empty properties from 1st April 2013.

The changes affect all rental properties that previously would have been automatically exempt from charges, including all empty furnished and unfurnished properties available for rent.

Landlords with properties that are empty because of building work also lose the right for council tax exemption, as many local authorities have decided to charge the full amount from the first day that the property is empty.

These are the exact changes:

  1. Exemption class C (properties that are empty and unfurnished for up to six months) has been abolished and each council can decide whether to award a local discount in its place
  2. Councils can decide to charge an additional premium of up to 50% on homes that have been empty and unfurnished for two years or more
  3. Exemption class A (properties requiring or undergoing major repairs for up to 12 months) has been abolished and each council can decide whether to award a local discount in its place
  4. The minimum discount that councils can give for furnished homes that are no one’s ‘sole or main residence’ – i.e. second homes and unoccupied furnished lets – has been reduced from 10% to 0%.

Different local authorities may vary in their approach to charging landlords, some are charging landlords with empty properties the full Council Tax from day one, while others are allowing a short ‘grace’ period of perhaps a month and then either levying the full Council Tax or a proportion of it for the next five months.

Southwark Council in London is allowing empty, unfurnished properties to be exempt for two months, after which the full charge is applied. However, there is no exemption at all for empty, furnished rental properties. On properties empty for two years or more, it will charge an additional premium of 50%.

Spelthorne Council is giving a one-month exemption to empty, unfurnished rental properties, and then giving a 50% discount in month two, followed by a 25% discount in month three, followed by no discount. This local authority will also be charging 150% Council Tax on properties empty for over two years.

Information as to what each local authority has decided should be clearly displayed on their own individual council websites.

All local authorities will have to be notified promptly about empty rental properties, which could mean having to notify the council of an empty rental property on the day that tenants move out, even if it is going to be vacant just a very short while.

There has been speculation in the national media that some PRS landlords will raise their rental prices as a result.

Landlords will also have the problem of dealing with tenants who leave the rental property before the end of their notice period. Previously, tenants would have remained liable for Council Tax until the official end of their tenancy or until the rental property is let again, but these tenants are now excused Council Tax.

This has not mattered until now, because of the automatic exemption: however, it could mean that the landlord now has to pick up the Council Tax bill immediately.

Some local authorities are also taking a cumulative approach to empty rental properties, so that if granting an initial one-month exemption, the local authority may add up short periods of vacancy and bill the landlord for rental property that may have only been empty for just a few weeks within a year.

Landlords may wish to take a more pragmatic approach to rent if they are faced with paying Council Tax on an empty rental property. It may be better to lower the rent and offer rent guarantee insurance to incentivise tenants to move in quickly.

If buy to let landlords are using a lettings or property management agent, it is important to discuss the issue of Council Tax liability with them, not least because of the cost implications and the importance of marketing properties efficiently before they become vacant.

Lettings and property management agents should be up to speed on all the changes that affect Council Tax within their local authority area. Landlords should also make sure that the agent takes responsibility for ensuring that the local authority is informed when a rental property becomes empty.

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