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HMRC internal manual

Property Income Manual

Deductions: main types of expense: rates and council tax

Some letting agreements make the rates or other charges the responsibility of the tenant, while under others they are to be borne by the landlord. If the agreement specifies that the charges are to be borne by the landlord it will normally be acceptable to deduct:

  • rates on business premises,

  • water rates and water service charges,

  • council tax (but see below - it may be more common for this to be the responsibility of the tenant).

If part of the property is let and part is occupied by the landlord, you may allow a deduction of a suitable proportion of the charges.

Council tax

Council tax was introduced by the Local Government FA 1992 to replace the community charge or ‘poll tax’ with effect from 1 April 1993. The main features of the council tax are:

  • It is a property based tax, payable in respect of chargeable dwellings. These are defined in a way that is similar to that used for rating purposes before the community charge was introduced. It includes unoccupied dwellings. It excludes non-domestic (business) property, which is covered by the business rate.

  • Liability to pay council tax will, in the main, fall on individuals residing in the dwelling in question. Where tenants and landlord live in the same chargeable dwelling the liability falls on the landlord. Where two or more residents are both chargeable by virtue of having a similar interest in the property, each is jointly and severally liable. Spouses or civil partners living in the same dwelling are also jointly and severally liable, irrespective of whether they have the same interest. If the dwelling is empty, the tax is paid by the owner.

  • The tax is calculated on a daily basis.

  • Similar rules apply in Scotland but the tax is known as the Regional Council Tax, the Islands Council Tax or the District Council Tax, depending on which local authority imposes it.

There will be circumstances in which a landlord pays council tax on the property he or she lets, for example in respect of an empty property or a house in multiple occupation. Generally where a property is used partly for domestic purposes and partly for non-domestic purposes, the different parts will be subject to council tax and business rates respectively, but there may be some situations where a mixed use property is only subject to council tax.

For detailed guidance on the deduction of travelling expenses see BIM37600 onwards.