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Property held on trust and liability for council tax

Money iStock 000008683901XSmall 146x219If a property is held on trust, who has liability for council tax, the trustees or the beneficiary? LexisPSL Local Government team, in partnership with Kevin Long of Hackney Community Law Centre, consider the issue.

The principal factor in determining council tax liability will be physical residence of the dwelling, rather than the status of ownership. This follows the hierarchy for council tax liability under section 6 of the Local Government Finance Act 1992 (LGFA 1992) which sets-out the following categories of liable person in descending order:

  • a resident freeholder
  • a resident leaseholder
  • a resident tenant
  • a resident licensee
  • a resident
  • the owner

An owner is defined as a person holding a ‘material interest’ in the dwelling which at LGFA 1992, s 6(5) is described as a freehold interest, or a leasehold interest (if granted for six months or more). Where two or more persons fall within the same category then those persons will be jointly and severally liable. This is also subject to LGFA 1992, s 8 which operates by way of an exception to the usual hierarchy, for certain prescribed classes of property. See also Practice Note: Council tax.

The primary deciding issue then will be who is resident, and any resident will hold liability over a non-resident owner, be that ownership interest legal or beneficial. Competing ownership then will only be an issue where there are owners with an equivalent material interest, and where each owner is resident, or where neither is resident and the property is empty, or where the property falls into a prescribed class under LGFA 1992, s 8. This covers most notably houses in multiple occupation, where it is the owner(s) who will be liable, ahead of any resident(s).

In R (Clark) v Bracknell Forest Borough Council [2003] EWHC 3095 (Admin) the court addressed the issue of legal and beneficial ownership. The registered owner had sold the property to their parents and thus claimed to no longer hold any beneficial interest. The court took a broad view to the definition of ownership and held that either a legal or a beneficial stake amounted to a ‘material interest’, and that either would therefore classify the individual as an owner for council tax purposes. This suggests that where there is a trustee holding title and an equitable owner holding the beneficial interest then both will be defined as owners under LGFA 1992, s 6, and so liability will fall on both, jointly and severally.

This would potentially create some complexity where an owner runs into financial difficulty. If an owner(s) becomes bankrupt then any equitable interest will pass to the trustee in bankruptcy, and so potentially leave the trustee exposed to liability as an ‘owner’. However, the trustee is then specifically excluded from liability, see Class Q of Council Tax (Exempt Dwellings) (Amendment) Order 1993, SI 1993/150. In Soor v London Borough of Redbridge [2013] EWHC 1239 (Admin), a bankrupt joint registered owner had argued unsuccessfully that they should escape liability as they held no beneficial interest in the property, the interest having passed to the trustee. The court held it must have been Parliament’s intention for liability to fall on the registered owner(s) and for liability to be joint and several where there was joint ownership, regardless of the owner no longer holding any beneficial share. Similarly where a lender recovers possession of an unoccupied dwelling from a mortgagor then again potential exposure to council tax liability would ordinarily follow, but that too is exempt (Class L of Council Tax (Exempt Dwellings) Order 1992, SI 1992/558).

A further exemption is under Class F (Council Tax (Exempt Dwellings) (Amendment) Order 1994, SI 1994/539), in situations where the owner has died, the property is unoccupied, and the dwelling is held on trust by the executor or administrator. The dwelling then will be exempt until the grant of probate or letters of administration, and for a further six months thereafter. Beyond the six months though, the liability will fall on the executor or administrator as trustee, until such time as the dwelling is disposed of or transferred to the beneficiary.

This answer was originally published in LexisPSL Local Government. If you would like to read more quality content like this, then register for a free 1 week trial of LexisPSL.