Council Tax Changes Costs Landlords

Council Tax Changes Costs Landlords

As of 1st April 2013, all UK local authorities will have the discretion to charge the full Council Tax due on any empty properties within their borough. This is bad news for landlords as this will include any empty private sector rental properties.

The changes are designed to increase local authority revenues and will affect properties that until now had been granted automatic exemption or discounts, including furnished and unfurnished properties in the private rented sector (PRS).

Properties that would previously have been exempt including those that are empty because of necessary building work also lose the automatic right to be let off Council Tax for up to a year.

Numerous local authorities have decided to charge the full amount of Council Tax from the outset. The important changes to Council Tax charges are detailed below:

  • 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
  • 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
  • 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
  • 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%.

It isn’t all bad news for PRS landlords, some local authorities are allowing a short grace period and then levying the full Council Tax due for the property, or a proportion of it for a pre determined period.

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

Spelthorne Council will give a one-month exemption to empty, unfurnished rental properties, and then apply a 50% discount in month two, a 25% discount in month three, with the full council tax becoming due after that. This local authority will also be charging 150% Council Tax on properties empty for more than two years.

Information on Council Tax charges should be clearly displayed on every local authorities own websites, and it is recommended that landlords notify their local council promptly when their rental property becomes empty, preferably on the day that tenants move out, even if it is going to be vacant for only a very short period.

There is a great deal of speculation that many PRS landlords may decide to raise their rental prices as a result, in order to cover the increased void costs, but landlords faced with a council tax bill of £125 – £150 a month for every empty rental property may be more likely to accept a lower rent if the tenants can move in immediately.

Landlords will also have the problem of what happens when a tenant, who has given two months’ notice to move out, actually leaves before the official end of their tenancy.

Previously tenants would remain liable for the rent until the official end of their tenancy, but would be let off from Council Tax obligations, unless they were already in arrears. This has not mattered before because of the automatic Council Tax exemption. However, the landlord will now become immediately liable for the Council Tax bill.

UK landlords also need to be aware that some councils are adopting a cumulative approach to charges for empty properties, so that if the local authority are willing to grant an initial one-month exemption, they may decide to add up short periods of vacancy and bill the landlord for property that may have been empty for a few weeks within one year.

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

Lettings and property management agents should know in detail the local authority council tax charges and landlords should also make sure that the agent takes full responsibility for ensuring that the local authority is informed when a rental property becomes empty.

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