FreeAgent: How does Council Tax work for landlords?

FreeAgent: How does Council Tax work for landlords?

When you own property, unpleasant extra costs can pop up out of nowhere. Council Tax is one that can surprise you - landlords usually don’t need to pay it, but in some circumstances you could be responsible for it. We’ve answered some of the most common questions about Council Tax for landlords, so you don’t get caught out. 

Do you pay Council Tax per person or per property?

Council Tax is calculated per property. You’ll be able to find out how much Council Tax you need to pay each year by checking your property’s band in the annual fees set by your local council. 

However, it is worth noting how many people will be living in the property, as you could be eligible for discounts on your bill. For example, properties with a single tenant can get a 25% discount on their Council Tax bill and empty properties can get up to 50% off. 

Some tenants are ‘disregarded’ for Council Tax, meaning they don’t count when calculating how many people live in the property. For example, full-time students are disregarded, so a property with only three student tenants living there would be eligible for 50% off. Take a look at the full list of people who can be disregarded for council tax. 

Who has to pay Council Tax? 

You’ll be glad to know that Council Tax should usually be paid by whoever is living in the property - i.e. your tenants. But, there are two main exceptions you’ll need to be aware of. 

1. A house in multiple occupation (HMO) is a property with at least three individual leases. If you rent out an HMO property, you will be liable to pay Council Tax for the whole property. Many landlords of HMO properties include the cost of Council Tax in their rents. 

2. If your property is empty, you will be responsible for paying Council Tax for as long as it remains unoccupied. 

Do you pay Council Tax when your property is empty?

Yes, you will still have to pay Council Tax when there’s no one living in your property, but the good news is you’ll probably be eligible for a discount. Remember when we said properties with no tenants can get 50% off? Bear in mind that if you have multiple properties that are unoccupied at once, you may not get the full 50% discount on your bill. 

If your property is unfurnished or has recently had extensive repairs, you may be exempt from paying Council Tax on it for up to six months or receive a discount. You will have to notify your local council of these repairs and they will tell you the date your payments must resume. 

Something else to bear in mind - you can be charged extra Council Tax if your property has been unoccupied for two or more years (one year in Scotland). 

Can landlords claim tax relief on Council Tax?

Yes, you can claim tax relief on Council Tax, as long as you have paid it yourself. The rule to follow when figuring out if a cost is an allowable expense is to ask yourself ‘is this cost wholly and exclusively for renting out a property?’ 

So if your property is empty for two months and you pay Council Tax for those months, you can add this to your tax return as a running cost. However, once you have tenants paying their own Council Tax, you must stop recording this as an expense, as you’re no longer paying it.

FreeAgent for Landlords

If you want help managing tax obligations like Council Tax as a landlord, FreeAgent can help. We’re building a brand new version of our award-winning accounting software that’s designed specifically for landlords. FreeAgent for Landlords will help you manage your property finances and submit Self Assessment to HMRC from January 2024. 

You can find out more about FreeAgent for Landlords and sign up to register your interest to be the first to know when it’s ready. Alternatively, you can speak to your accountant about early access.

Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.