Answers · UK 2025/26

What is an HMO property and how is it taxed?

An HMO (House in Multiple Occupation) is a property rented to 3 or more unrelated tenants who share facilities such as a kitchen or bathroom. HMOs face mandatory or additional licensing requirements and the same income tax rules as other buy-to-let properties, but often generate higher yields. The 3% SDLT surcharge applies on purchase.

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A House in Multiple Occupation (HMO) is a privately rented property where at least 3 tenants from 2 or more separate households share facilities such as a kitchen, bathroom, or toilet. **Licensing** - **Mandatory HMO licence**: required for properties with 5 or more occupants from 2 or more households, at least 3 storeys, sharing facilities -- applies in England under the Housing Act 2004 - **Additional licensing**: many councils extend licensing to smaller HMOs (3-4 occupants) at their discretion - **Selective licensing**: some councils require all private rented properties in certain areas to be licensed - Licence fees vary by council, typically £500-£1,500 for 5 years **Tax treatment** HMOs are taxed as standard buy-to-let properties: - Rental income declared on Self Assessment (or through a company) - Section 24 interest restriction applies -- mortgage interest gives a 20% credit only - Expenses such as management fees, repairs, insurance, licensing fees, and utilities (if landlord pays) are deductible - Wear and tear: only replacement costs of like-for-like items are deductible (replacement relief) **Allowable expenses for HMOs** Because many HMOs are let furnished and landlords often pay bills, the expense base is wider: - Utility bills (gas, electricity, broadband) - TV licence and council tax (if paid by landlord) - Furnishings replacement - HMO licence fees - Management and cleaning costs - Fire safety equipment, carbon monoxide alarms **SDLT on purchase** The 3% SDLT surcharge applies on purchase of any additional residential property. For a £300,000 HMO: - Standard SDLT: £5,000 (0% on first £125k + 2% on next £125k + 5% on remaining £50k) - 3% surcharge: £9,000 - **Total SDLT: £14,000** **CGT on disposal** When you sell an HMO, Capital Gains Tax applies at **18%** (basic rate) or **24%** (higher rate) on gains above the £3,000 Annual Exempt Amount.