Commercial Insurance Articles
Empty Property Rate Relief - new rules to hit commercial property?
12 Sep 2007
Commercial property owners have enjoyed significant tax breaks on their empty properties since the 80s, but new regulations are set to shake up the system.
Empty industrial and storage buildings currently get a complete exemption from the rates paid by occupied premises until such time as they come back into use.
And all other unoccupied non-domestic property enjoys the same benefits for three months before paying rates at a minimum of 50 per cent relief.
According to government figures this amounts to £1.38 billion of tax relief in England alone in 2007-08.
The scheme was first drawn up in a period of recession where demand for property was low, but investors have benefited greatly from the improved property prices and commercial rents that are close to the worlds highest due to unprecedented demand for office space in major business centres.
Under these new economic conditions, the government argues that it no longer makes sense to allow owners tax breaks for property that is kept empty.
So in order to rebalance the situation, the Rating (Empty Properties) Act 2007, due to come into force next April, will encourage owners to bring properties back into use by dropping all exemptions after the three month empty period - meaning all unoccupied commercial properties will be charged 100 per cent rates.
Financial secretary to the Treasury, John Healey said in the Commons debate on the Act that higher rents due to high property demand were dissuading businesses from starting up or moving to the UK from abroad.
"We therefore need our stock of commercial property to be used efficiently, and in doing so we need to increase the supply and reduce costs to businesses," he said, adding that this was "precisely the purpose" of the new Act.
A consultation over the small number of exceptions which should be allowed, such as for charities, is underway, but the majority of empty commercial property owners are set to see greatly increased costs - providing a boost to the Chancellor's coffers of over a £1 billion next year.
This had led to an outcry from many corners of the commercial property sector, with the Royal Institution of Chartered Surveyors (Rics) suggesting the restriction on empty property tax relief could have "significant adverse effects" on the market.
In a statement the group said: "Properties are not left vacant deliberately and the Rics does not believe that a charge on empty property is an effective way of encouraging the redevelopment of vacant sites or empty property."
Rics also suggested that owners may resort to deliberately damaging their property to avoid the rates rather than fix them up and make them available to tenants.
However, the government specifically notes in the Act that any change to the property's physical state is to be disregarded - effectively negating these avoidance tactics.
Nevertheless, there may be options still available to commercial owners who are looking to reduce the upcoming increased rate burden.
According to Eric Rose, rating partner at Dixon Webb LLP, appeals can be lodged by owners to seek a reduction in rates - especially for properties which are vacant because of the undesirability of the area.
In addition, Mr Rose notes a slightly craftier move is still possible as under current rules, a short-term occupation of six weeks entitles the ratepayer to three months (six months for industrial premises) of rate relief if it then becomes empty once again.
He suggests that owners may which to run a "rolling programme of occupation" to avoid paying full rates for the majority of the year - but he also cautioned that the government may move to close this loophole before the new rules come into force.
