Out-Law News 2 min. read

Government moves on business rates "good news for developers" says expert

The Government plans to introduce an exemption from empty property rates for newly-built commercial properties from October next year, it has announced.

It will consult shortly on the proposed exemption, intended to apply for the first 18 months that properties completed between 1 October 2013 and 30 September 2016 are left lying empty.

In addition the Small Business Rate Relief scheme, which discounts rates for businesses that only occupy one property with a rateable value of below £12,000, will be extended for a further year, until April 2014. Over half a million businesses benefit from the scheme, with over 350,000 paying no rates at all, according to the Chancellor's Autumn Statement (93-page / 2.8MB PDF).

Property law expert Stuart McCann of Pinsent Masons, the law firm behind Out-Law.com, said that the announcement relating to newly-built properties would be "welcomed extensively" by the industry as "good news for developers and a stimulus for new development".

"It is widely accepted that, since its introduction, empty property rates legislation has dampened the commercial property development market and stifled businesses," he said. "In the context of stringent austerity measures, the Government at least appears to be listening to the concerns of the property industry."

"However, many will argue that the planned 'grace period' of 18 months should be extended still further if real economic benefit is to result, and more urgent attention should also be given to the adverse effects of the current empty rates regime on the existing stock of empty properties," he added.

Business rates are charged on most non-domestic premises including shops, offices, warehouses and factories and form the third biggest outgoing for small businesses after rent and staff costs. Premises are assigned a rateable value by the Valuation Office, which is then used by the local authority to calculate how much the occupier of that property should pay.

Owners of commercial properties, such as shops and offices, are exempt from paying business rates on an empty property for three months after the property becomes vacant, while industrial properties, including factories and warehouses, remain exempt for six months after becoming vacant. Buildings with a rateable value below £2,600 are exempt until they become occupied again, while buildings with a rateable value above this amount are liable for the full amount after the three-month period has passed. This threshold, which was previously set at £18,000, came into force in April 2011.

Previously, owners of commercial properties received 50% relief on rates after the three month exemption period has passed while industrial premises had a permanent exemption. These reliefs were stopped in 2008.

Pinsent Masons' retail property expert Andrea McIlroy-Rose said that the further extension of the Small Business Rates scheme would also be welcome news, particularly for those small retailers already struggling with difficult economic conditions.

"Business rates have risen fairly dramatically in the last few years and this freeze may start to address the still increasing number of vacant retail units," she said. "A more permanent freeze, or at least a fairer basis for setting the rates in future, is ultimately what is required to help the retail sector on the road to recovery."

The Government announced in October that the next business rates revaluation exercise would be postponed for two years, until 2017, in a move it said would provide "tax stability" to shops and businesses. Industry groups reacted angrily to the decision, which Stuart McCann said at the time would result in businesses paying higher rates for longer.

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