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Do HMO Conversions Fall Under the Construction Industry Scheme (CIS)?
26 June 2025
Accounting & Compliance, Building a Business, Property Investors & Developers, Reducing Tax, Structuring a Business
Quick Answer:
Generally, no.
HMO conversions do not trigger CIS because there is no change in the property’s use.
However, if your construction spend exceeds £3 million annually or your activity resembles property development, you may be classed as a contractor under the Construction Industry Scheme.
What is the Construction Industry Scheme (CIS)?
The Construction Industry Scheme (CIS) is a set of rules HMRC uses to ensure tax compliance within construction.
Under CIS, contractors must deduct tax at source when paying subcontractors.
For property developers, CIS applies automatically.
For property investors, the rules depend on how much you spend on construction and whether your activities count as “development.”
What’s the Difference Between a Property Investor and Developer?
- A property investor purchases properties to rent or sell for profit.
- A property developer constructs new buildings, renovates, or changes the use of properties.
When Does a Property Investor Become a Deemed Contractor?
HMRC may class a property investor as a “deemed contractor” under CIS if:
- Your annual construction spend exceeds £3 million (in any rolling 12-month period).
- You carry out works that change the nature of use (e.g., converting an office into flats).
Do HMO Conversions Trigger CIS?
This is a common concern among landlords and property investors converting houses into Houses in Multiple Occupation (HMOs).
HMRC’s guidance (CISR12080) states:
“If activities include a redevelopment of a property leading to a change in its nature of use… that part of its activities will amount to property development.”
However, converting a house into an HMO does not change the nature of use.
It remains a residential dwelling both before and after the conversion.
Therefore:
- If your construction spend is under £3 million, and
- The property’s use remains residential (i.e. it’s not being turned into something entirely different),
You are unlikely to be caught under CIS as a deemed contractor.
But What If I Have Multiple Projects or High Spend?
Even if you’re not changing use, HMRC may take the scale and frequency of works into account.
You could be reclassified as a property developer if:
- You have multiple projects in progress
- You’re undertaking major redevelopment works
- You’re converting or extending buildings at scale
In this case, you may fall under CIS as a mainstream contractor.
CIS Checklist for HMO Investors
Are you spending over £3 million per year on construction?
Are you changing the use of the property (e.g. office to flat)?
Are you acting more like a developer than an investor?
If you answered yes to any of the above its important to seek professional advice as early as possible.
CIS compliance is complex and can lead to penalties if ignored.
Summary
If you’re converting properties into HMOs, you are likely safe from CIS obligations.
However its important to be aware that this can change based on the nature, size, and frequency of your projects.
As always, seek tailored tax advice before engaging contractors.
How we can help
With years of experience supporting landlords and developers, Friend & Grant helps property businesses navigate the complex tax and compliance landscape.
From CIS queries to capital allowances, we can use our expertise to guide you in maximising tax efficiency.
Need Help with CIS or HMO Tax Planning?
Call us today on 01634 731 390
or
Complete the contact form below to arrange a free, no-obligation consultation
We’ll review your construction activity, assess your risk under CIS, and help you avoid HMRC trouble down the line.
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If you would like to find out more about some of our services that might help you please take a look at our related pages:
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The content in this blog is correct as at 18th June 2025. See terms and conditions.
