Exemption rule changes on empty property business rates set to hit landlords
21st March 2011
The past two years have been challenging for landlords and property owners, particularly those landlords with commercial and industrial properties within their portfolio.
From 1st April 2011 times will be increasingly challenging for property owners due to changes in the exemption rules for empty property business rates.
Up to 31st March this year, property owners who have vacant premises with a rateable value of £18,000 or less, do not have to pay business rates.
However, from 1st April 2011, the Government will remove the current empty rates exemption and reduce it from £18,000 to just £2,600. In basic terms, any property with a rateable value of over £2,600 – albeit having an initial exemption of 3 months for non-industrial premises (office/retail) or 6 months for industrial premises, will then have to pay business rates at the full amount. The aim of these cuts is to encourage property owners to let empty properties sooner rather than later. The Government claims that these cuts will save the Exchequer £400m in 2011/2012.
The British Property Federation (BPF) has warned that the Government’s decision to cut empty property rates relief will be a “further blow” to the industry.
The Royal Institution of Chartered Surveyors (RICS) has suggested other methods which could be introduced to try to alleviate the immediate effect on property owners with empty premises.
The 1st April 2010 Valuation List is prepared on the basis of market rents on 1st April 2008. Of course, two years ago market rents were higher than at present, and therefore in many instances the current rateable values actually exceed the current market rent.
There is an appeal procedure to rateable values, but you must remember that you are challenging the rateable value based on market rents on 1st April 2008, and therefore current evidence is extremely difficult to use. It must be remembered that Local Authorities are merely collection agencies for Central Government and it is the Valuation Office to which appeals are made (see the VOA website for further explanation).
The reduction in the rating exemption will certainly be beneficial to some tenants, as landlords will be looking to mitigate their rates liability by offering attractive deals.
One way in which landlords can avoid business rates liability is intermittent occupation whereby a landlord lets a property on a casual basis for at least six weeks. If a property is occupied for six weeks or more, it can then be empty for the three month or six month period (depending on the type of property) before the owner will again become liable for business rates. If the owner repeated this process its liability could potentially be deferred indefinitely but it is important that the short –term letting is documented in writing in order to avoid granting the tenant security of tenure. The Government have their concerns about this avoidance tactic and are considering extending the six week period.
There are many other ways to reduce business rates liability. For more information and for assistance with letting your property please contact Laura Raby at Ansons Solicitors on (01543) 267192 or Andrew Price at Kingston Commercial Property Consultants on (01543) 414300.
