HMO Tax: Houses in Multiple Occupation Guide

What Is an HMO?

A House in Multiple Occupation (HMO) is a property rented out by at least three tenants who are not from one household, sharing facilities like bathrooms or kitchens. Larger HMOs (five or more tenants from more than one household) require a mandatory licence.

HMOs are popular with landlords because letting individual rooms typically generates higher total rent than letting the whole property to a single household.

How HMO Income Is Taxed

HMO rental income is taxed the same way as any other rental income — it is added to your total income and taxed at your marginal rate. There is no special tax treatment for HMOs.

However, the expense profile of an HMO is different from a standard let, which affects your taxable profit.

HMO-Specific Expenses

In addition to standard landlord expenses, HMO landlords can typically claim:

• Utility bills — in an HMO, the landlord usually pays gas, electricity, water, and broadband. These are fully deductible
• Council tax — if you pay it (common in HMOs)
• Communal area cleaning — regular cleaning of shared spaces
• Furnishing rooms — replacement of furniture in individual rooms (Replacement of Domestic Items Relief)
• Licence fees — HMO licensing costs
• Fire safety equipment — fire doors, alarms, extinguishers, emergency lighting
• Additional compliance costs — safety inspections, waste management

These additional expenses can significantly reduce your taxable profit, partially offsetting the higher gross income.

Section 24 and HMOs

Section 24 (mortgage interest restriction) applies to HMOs the same as any other rental property. If you are a higher rate taxpayer with a mortgage, the 20% tax credit may not fully offset the tax on your finance costs.

Because HMOs typically generate higher income, the Section 24 impact can be proportionally larger — pushing your total income further into higher rate bands.

HMO Business or Investment?

If your HMO operation is extensive (multiple properties, significant services, high tenant turnover), HMRC may consider it a property business rather than a passive investment. This distinction rarely matters for income tax purposes, but it could affect National Insurance liability if HMRC deems you to be "trading."

In practice, most HMO landlords are treated as property investors, not traders.

Capital Gains Considerations

HMO properties can appreciate significantly, especially in urban areas with strong student or professional tenant demand. When selling, the same CGT rules apply as for any residential property — 18%/24% rates, £3,000 annual exemption, 60-day reporting requirement.

Improvements made to convert a property to HMO use (adding bathrooms, fire doors, subdivisions) are capital costs that can be deducted when calculating your gain.

Track your HMO income and expenses with Accounted for accurate tax records.

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