Out-Law / Your Daily Need-To-Know

Government to review empty property rates legislation, according to press reports

Out-Law News | 22 May 2012 | 4:11 pm | 2 min. read

The Government could propose business rates exemptions for empty properties after Estates Gazette revealed that the Government was spending more than £50 million in tax per year on its own vacant properties, according to the industry publication.

According to its information, which the publication received from a freedom of information request to all UK local authorities and Government departments, central and local government spent £50m over the past 12 months on business rates. That amount is expected to rise to £70m for this financial year, it said in an article.

Chancellor of the Exchequer George Osborne has now asked Conservative MP Julian Sturdy to form a working group with six other MPs to produce proposals on how the empty rates rules could be changed.

"The Chancellor was extremely helpful," Sturdy told Estates Gazette. "All members present will now form a small working group to develop some [empty rates] proposals moving forwards."

Property law expert Lois Henderson of Pinsent Masons, the law firm behind Out-Law.com, said that the news showed that the commercial property industry's criticism of the so-called 'bombsite-Britain tax' had not "fallen on deaf ears".

"Following disappointment at the lack of reform to the business rates system in the Budget, this can only come as welcome news to the many who view empty rates as damaging to economic growth and holding back investment," she said.

Business rates are charged on most non-domestic premises including shops, offices, warehouses and factories. Premises are assigned a rateable value by the Valuation Office, which is part of HM Revenue and Customs (HMRC). This is 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 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 had passed, while industrial premises – which can include factories and warehouses – had a permanent exemption. These reliefs were stopped in 2008.

According to Estates Gazette, the working group could propose a three-year exemption on rates for new development, aimed at "encouraging regeneration", plus a full exemption from business rates for "low-rateable-value" properties of the type normally occupied by smaller businesses. The group will also press for a "full impact assessment" of the burden empty rates pose to the property industry and wider economy, it said.

Research published by industry body the British Property Federation (BPF) in March showed that the total cost of empty property rates in the UK had risen by over 400% overall, and by 900% for industrial properties, since 2006, while vacancy rates had risen from 7.0% to 9.0% in the same time frame.

"Even though investors are managing their portfolios to the best of their ability, trying to mitigate the effects of the downturn and working with tenants to keep properties occupied, they have still been lumbered with this enormously disproportionate increase in costs," said Liz Peace, head of the BPF, at the time.