The Great HMO Council Tax Shake-Up: A Landlord's Guide to the 2025 Consultation
- Amanda Woodward
- Jan 16
- 10 min read
The Great HMO Council Tax Shake-Up: A Landlord's Guide to the 2025 Consultation
For the past decade, a silent crisis has been eroding the viability of quality HMO investments across the UK. The culprit? A practice known as council tax disaggregation—a technical term with devastating financial consequences. The Valuation Office Agency (VOA) has been treating individual en-suite rooms within Houses in Multiple Occupation as separate dwellings for council tax purposes, transforming single-banded properties into multi-banded financial nightmares.
The impact has been catastrophic. Landlords who invested in providing modern, highquality shared accommodation have watched their profit margins evaporate overnight. Properties that were financially viable suddenly became loss-making. Worse, the uncertainty surrounding when—or if—a property might be disaggregated has created a chilling effect across the entire sector, deterring investment in the very housing stock the UK desperately needs.
Now, in a landmark development for the private rented sector, the government has launched a formal consultation proposing to end this practice once and for all. This isn't merely a technical adjustment; it's a potential game-changer for professional landlords, property investors, and the broader mission to increase affordable housing supply.
This comprehensive guide breaks down exactly what the consultation means for your portfolio, the background to this welcome shift in policy, the nuances that could affect larger HMOs, and critically, why your response to this consultation could shape the future of HMO investment in the UK.
The Problem: How Disaggregation Turned Viable Projects into Financial Disasters
Understanding the VOA's Disaggregation Practice
To appreciate the significance of this consultation, we must first understand the problem it seeks to solve. The Valuation Office Agency holds sole jurisdiction over property valuations in the UK for council tax purposes. Over recent years, the VOA has increasingly applied ambiguous guidance to treat individual en-suite rooms in HMOs as self-contained dwellings —effectively treating them as studio flats.
This interpretation has created a legal grey area. The guidance focuses on physical features —en-suite bathrooms, kitchenettes, or independent facilities—rather than the practical reality that these rooms share a main entrance, communal areas, and other facilities with the rest of the property. Yet the VOA's interpretation has prevailed, leading to widespread disaggregation decisions.
The Financial Devastation: Real Numbers, Real Impact
The financial consequences have been severe. Consider these real-world scenarios: Scenario 1: The Six-Bedroom Conversion
A landlord invests £250,000 in converting a Victorian property into six en-suite rooms. Previously, the property was banded as a single Band A or B property, with council tax liability of approximately £1,500 per year (typically covered by the landlord as part of the allinclusive rent). Following a VOA disaggregation decision, the property is suddenly assessed as six separate Band A units, creating a council tax liability of approximately £9,000 per year —a sixfold increase.
For a property with rooms renting at £500 per month, this represents an additional £750 per month in costs. On a 6-room property generating £3,000 monthly revenue, this 25% cost increase wipes out the investment's profitability entirely.
Scenario 2: The Mid-Sized HMO
A landlord operates a 10-bedroom HMO in a mid-tier council tax area. The property was previously a single Band C assessment (approximately £1,800 per year). Post-disaggregation, it becomes 10 separate Band B assessments, creating a liability of approximately £15,000 per year. The landlord, who had factored in £150 per month in council tax costs, now faces £1,250 per month—a sevenfold increase that transforms a profitable operation into a loss-making venture.
The Chilling Effect: Why Investors Are Abandoning the Sector
This "council tax roulette" has created profound uncertainty. Professional landlords face an impossible dilemma: invest in modern, high-quality en-suite accommodation that tenants demand, knowing that a VOA decision could render the investment unviable overnight, or avoid en-suite features altogether to reduce the risk of disaggregation.
The result? The sector has been starved of investment in precisely the type of accommodation the UK needs—quality, affordable shared housing for young professionals, students, and key workers. Landlords we've worked with have personally abandoned projects worth hundreds of thousands of pounds because of unexpected disaggregation decisions. Others have been forced to sell properties at significant losses.
This isn't just a problem for individual landlords; it's a systemic barrier to housing supply. When investment in affordable shared housing becomes financially unviable due to arbitrary tax decisions, the entire housing market suffers.
The Government's Response: A Return to Common Sense and Certainty
Why the Government Has Acted
The government has recognized that the current situation is untenable. It actively works against the stated policy objectives of increasing housing supply, supporting the private rented sector, and making housing more affordable. The practice of disaggregation disincentives exactly the type of investment the UK needs.
The consultation, launched as part of the broader "Levelling Up" agenda, represents a significant shift in policy direction. It signals that the government understands the problem and is committed to solving it—provided the industry's voice is heard during the consultation period.
The Core Proposal: Single Banding for HMOs
The government's proposal is refreshingly straightforward:
HMOs should, by default, be valued as a single property for council tax purposes, except in very specific and exceptional circumstances.
This single change would restore certainty to the market. Landlords could invest with confidence, knowing that their financial projections wouldn't be destroyed by a VOA decision. Tenants would benefit from genuinely affordable accommodation, as the council tax cost wouldn't be unexpectedly imposed on top of their all-inclusive rent.
For existing properties that have been disaggregated, this legislation should provide the legal basis for landlords to challenge those decisions and have them reversed—a significant win for those who have suffered financial losses.
Why This Matters: Three Strategic Benefits
Investment Certainty
Professional landlords require certainty to make long-term investment decisions. Single banding removes the risk of arbitrary disaggregation, allowing investors to plan with confidence.
Housing Supply
When HMO investment becomes viable again, landlords will invest in upgrading and expanding the stock of affordable shared accommodation. This directly supports the government's housing supply objectives.
Tenant Affordability
Tenants benefit from genuinely affordable rents when landlords aren't burdened with unexpected council tax liabilities. Single banding keeps costs down and housing accessible.
The Nuances: What About Larger HMOs?
The Government's Legitimate Question
Whilst the headline proposal is overwhelmingly positive, the consultation raises an intelligent question: should a one-size-fits-all approach apply to all HMOs, regardless of size?
The consultation specifically compares a five-bedroom Victorian conversion with a 14- bedroom former guesthouse, questioning whether they should be treated identically. This is where landlord feedback becomes crucial—and where the outcome remains genuinely uncertain.
Three Possible Approaches to Large HMOs
Option 1: Hard Cut-Off at a Specific Room Number
The government could legislate that HMOs with up to 12, 15, or 20 rooms receive single banding, but larger properties are treated differently. The risk here is significant: developers would artificially cap projects at one room below the threshold, fragmenting larger developments into multiple smaller HMOs to avoid the higher tax band. This would be counterproductive to housing supply objectives.
Option 2: Commercial Business Rates for Very Large Properties
A more logical approach would be to move very large developments (e.g., 20+ rooms) onto commercial business rates instead of residential council tax. This would still provide single bill certainty (a major win for operational simplicity), but the rate would likely be higher than residential council tax, reflecting the property's commercial scale. This approach balances fairness to local authorities with certainty for landlords.
Option 3: Tiered Banding Based on Property Blocks
A creative compromise would be to band large properties in blocks. For example, a 21- bedroom HMO could be liable for three council tax bills, each treating a block of 7 rooms as a single unit within one building. This approach:
• Provides certainty (no more arbitrary disaggregation)
• Increases tax revenue for local authorities (compared to single banding)
• Keeps large projects financially viable
• Aligns with the practical definition of a "large HMO" (typically 7+ rooms)
Our Professional View
We believe a tiered approach based on blocks of 6–7 rooms represents the fairest solution. It maintains the core benefit of certainty whilst acknowledging that very large developments may warrant a different treatment. Crucially, it prevents the perverse incentive of artificial fragmentation.
However, this is precisely why your response to the consultation matters. The government is genuinely seeking industry input on this question. Your real-world experience as a landlord or investor is the evidence they need to make the right decision.
Why Your Response to the Consultation Is Critical
The Deadline: 31 March 2025
The consultation is open until 31 March 2025. This is a fixed deadline, and the government will analyse responses received by this date to inform the final policy decision.
What to Emphasise in Your Response
When you respond to the consultation, focus on these key points:
The Need for Certainty: Explain how disaggregation has affected your investment decisions and portfolio planning. Emphasise that certainty is essential for long-term investment.
The Impact on Housing Supply: Describe how uncertain council tax liability discourages investment in the type of accommodation the UK needs. If you've abandoned or scaled back projects due to disaggregation concerns, say so.
Your Views on Large HMOs: If you operate or plan to operate larger properties, share your perspective on how the government should treat them. Should there be a cut-off? Should business rates apply? Should there be tiered banding?
Local Authority Fairness: Acknowledge that local authorities have legitimate revenue concerns. Suggest approaches (like tiered banding) that balance fairness to councils with certainty for landlords.
The Broader Housing Crisis: Connect your response to the government's stated objectives around housing supply and affordability. Show how this policy change supports those goals.
How to Respond
The consultation is available on the GOV.UK website. You can find it by searching for "HMO council tax consultation" or by visiting the direct link provided in the references section below. The consultation includes an online survey that typically takes 20–30 minutes to complete.
Don't be a passive observer. Your voice matters. The government will receive responses from landlord associations, property companies, and local authorities. Individual landlord perspectives—grounded in real operational experience—carry significant weight in policy making.
The Broader Context: How This Fits Into the Regulatory Landscape
Disaggregation and Article 4 Directions: Separate Issues, Linked Themes
Whilst the council tax consultation is distinct from planning regulation, both reflect a broader theme: the importance of well-thought-out government policy in the HMO sector.
Article 4 Directions—which remove permitted development rights for HMO conversions in specific areas—have been implemented with varying degrees of success. In some cases, like Crewe, poorly designed Article 4 Directions have stifled development and investment, creating unintended negative consequences.
The council tax consultation, by contrast, represents a sensible, evidence-based policy shift that should encourage housing supply. It demonstrates that when government policy is designed with industry input and practical considerations in mind, it can be genuinely pro investment and pro-housing.
This is why responding to the consultation is so vital. It sets a precedent for evidence-based policymaking in the HMO sector.
What This Means for Your Portfolio
If Your HMO Is Already Single-Banded
If your property is currently assessed as a single council tax unit, this legislation will provide long-term certainty. You'll have the confidence that the VOA cannot arbitrarily disaggregate your property in the future, protecting your investment's financial viability.
If Your HMO Has Been Disaggregated
If your property has been subject to a disaggregation decision, this legislation should provide the legal basis to challenge that decision and have it reversed. This could represent a significant financial recovery—potentially thousands of pounds annually in reduced council tax liability. .
If You're Planning New HMO Investments
This consultation removes a major barrier to new HMO development. Once the legislation is in place, you can invest in modern, high-quality shared accommodation with confidence, knowing that council tax liability won't be a moving target.
Frequently Asked Questions (FAQs)
What is council tax "disaggregation"?
Disaggregation is the process where the Valuation Office Agency (VOA) decides to split a single property—such as an HMO—into multiple, smaller units for council tax purposes. Each unit receives a separate council tax band and bill. For example, a six-bedroom HMO might be disaggregated into six separate Band A units, each with its own council tax liability, rather than being treated as a single property with one band.
Why has the VOA been disaggregating HMOs?
The VOA has relied on ambiguous guidance that focuses on physical features—en-suite bathrooms, kitchenettes, or independent facilities—to determine whether rooms constitute "self-contained dwellings." The guidance is unclear about whether shared entrances and communal facilities should factor into this assessment. This ambiguity has led to inconsistent application and widespread disaggregation decisions.
Why is the government proposing this change now?
The government has recognized that disaggregation is a barrier to providing affordable housing and discourages investment in the private rented sector. It actively works against the government's stated objectives around housing supply and affordability. The consultation is part of the broader "Levelling Up" agenda, which aims to support housing and community investment.
Will this legislation affect my existing HMO?
If your HMO is already correctly banded as a single property, this change will provide long-term certainty that the VOA cannot arbitrarily disaggregate it in the future. If your property has been disaggregated, this legislation should provide the legal basis for you to challenge that decision and have it reversed, potentially recovering thousands of pounds in annual council tax costs.
What makes a room "self-contained" in the eyes of the VOA?
This has been the core of the problem—the guidance is ambiguous. The VOA has often focused on facilities like en-suite bathrooms and kitchenettes, arguing they make a room a separate dwelling, even if it shares a main entrance and other facilities. The consultation aims to clarify this definition and prevent future disaggregation based on physical features alone.
Does this mean landlords won't have to pay any council tax on HMOs?
No. Under the proposed legislation, landlords will still pay council tax on HMOs. However, they will pay one council tax bill for the entire property (as is currently the case for most HMOs), rather than multiple bills for each room. This cost is factored into the all-inclusive rent paid by tenants, keeping housing more affordable.
A Turning Point for the HMO Sector
The proposed end to council tax disaggregation represents a beacon of common sense in an often-complex regulatory environment. It is a pro-investment, pro-housing, and protenant policy that will bring much-needed stability and confidence to the HMO sector.
Once this legislation is in place, professional landlords will be able to get back to what they do best: investing in and upgrading the UK's housing stock to provide high-quality, affordable shared accommodation. The financial certainty will unlock investment that has been frozen by disaggregation fears. Housing supply will increase. Tenants will benefit from more affordable options.
But this outcome is not yet guaranteed. The consultation is open until 31 March 2025, and the government is genuinely seeking industry input—particularly on how to treat larger HMOs fairly.
Do not be a bystander. Take minutes to respond to the consultation. Emphasize the need for certainty, the damage that disaggregation has caused to your business, and your views on how larger properties should be treated. Your real-world experience is the evidence the government needs to make the right decision.
The future of HMO investment in the UK may well depend on how many landlords make their voices heard in the coming weeks.
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