Scottish councils could get powers to tax landlords who allow property to lie empty

If passed, the Local Government Finance (Unoccupied Properties etc) (Scotland) Bill will allow local authorities to cut business rates relief on certain commercial properties that have been left lying empty for more than three months. In addition, they will be able to double council tax charges on certain long-term empty homes after one year. The changes would come into force from April 2013.

Local Government Minister Derek Mackay said that, even after reform, tax relief on empty commercial properties in Scotland would remain “significantly more generous” than those available in England. Vacant offices and shops in Scotland will have the 50% business rate relief available cut to 10% relief after three months, compared to no relief whatsoever on similar properties in England and Wales after the same time. Industrial properties and listed buildings will continue to receive 100% relief, while relief cuts off after six months in England and Wales.

“The Scottish Government wants to see thriving town centres across the country,” he said. “Our plans to reform empty property relief will introduce incentives to reduce the numbers of empty shops that hold back the development of our high streets.”

The Scottish Parliament's Local Government and Regeneration Committee issued a call for written evidence businesses likely to be affected by the proposals.

Business rates are charged on most non-domestic premises including shops, offices, warehouses and factories. Premises are assigned a rateable value by HM Revenue and Customs (HMRC) which is used by the local authority to calculate how much the occupier of the property should pay.

Property law expert Neil Hogg of Pinsent Masons, the law firm behind Out-Law.com, said that whilst the new regime would be less onerous than that which was introduced south of the border in 2008, it was unlikely to be welcomed by the property industry and businesses generally.

“Rather than acting as an incentive for landowners to let their empty properties, the potential for increased costs on the tenants of empty properties may in fact make securing new lettings even more difficult in already challenging occupier markets,” he said. “There will inevitably be increased costs for existing property owners which could result in further insolvencies for property businesses. The changes are also likely to discourage new development and future investment in property as an asset class.”

David Melhuish, director of the Scottish Property Federation, agreed that the proposals would “do nothing to reduce the numbers of empty shops and offices” in Scotland. He added that the removal of business rates relief for empty commercial properties in England “saw shop vacancies rocket” from 3% to a current figure of more than 14%.

“Properties are empty because of a lack of demand for their use caused mainly by the recession, not in the vast majority of cases due to deliberate intention by their owners or investors,” he said. “Landlords and investors need properties to produce rent - without it they have no income and with the exception of listed and very small properties most empty commercial premises are liable to pay 50% rates already. [The Bill] is therefore simply an additional tax on failure.”

The Scottish Government also announced a £2 million loan fund for projects intended to bring empty homes into use for affordable housing, such as schemes offering loans to help owners renovate properties currently lying empty. There are currently around 25,000 homes in Scotland which are classed as long-term empty but remain liable for council tax.

Currently, empty and unfurnished properties are exempt from council tax for the first six months. If they continue to lie empty, taxpayers receive a 10% discount.

In England and Wales, the Government is currently consulting on giving councils the power to charge an Empty Homes Premium worth up to 50% of council tax on properties that have been left vacant for more than two years.