The government’s decision to cut the Empty Property Rates Relief threshold this year has caused a great deal of concern within the commercial property and industrial property sector, with many claiming the move will do great damage to the pace of economic recovery.
Previously, properties with a rateable value of less than £18,000 did not have to pay the empty property business rates – a tax on commercial property that sits empty for more than three months.
However, Local Government Minister, Bob Neill, announced that the government would be cutting the exemption threshold for commercial property to just £2,600, claiming that it would save the Exchequer £400 million in 2011/12.
The change came into force in April.
It is claimed that by forcing businesses to pay the rates on empty commercial property the government is inadvertently damaging the prospects for a private sector-led recovery, particularly in disadvantaged areas that need the tax break afforded by the business rates relief. The rates relief has provided protection for many providers of commercial property in times of economic hardship and its removal is destined to have serious consequences for them.
A senior ratings consultant at business rates advisers CVS, Chris Barker, also points out that the abolition of the rates relief sends mixed signals about the government’s confidence in the strength of the economic recovery and, in our humble opinion, their support of commercial property owners and occupiers.
‘It’s interesting to note, according to the Government’s own figures, that the move will save the Treasury £400 million a year in lost revenue – a sharp uplift from the £185 million it cost to operate the relief in 2009–2010,’ he said.
But not all commercial property commentators share the view that reducing the empty property rates relief threshold will have a wholly negative effect. Chris Gorman, from the Federation of Private Business, argues that some small firms will benefit as landlords are forced to reduce the rents on commercial property in order to fill them more quickly.
‘Rents which seem to only ever increase, even during a recession, are a long-standing bugbear among business owners,’ he said. ‘Also, many small shops are adversely affected when empty units appear in their vicinity, so from this perspective the move may be a good one.’
The Taxpayers Alliance has also argued that the abolition of the rates relief on commercial property will have a negative effect, claiming the tax relief on commercial property was worth £1.2 billion to business. A detailed briefing on their website adds that landlords facing heavy taxation may choose to demolish properties rather than pay the rates, thereby reducing the fixed capital stock of commercial property available for the economic upturn.
In support of the calls to reverse plans for the tax, Bruce Dear, partner and head of real estate investment at Eversheds, comments: ‘The continuing absence of empty property rates relief is one of the most unfair business tax policies of modern times … This is a benighted tax on unwished for misfortune. It’s like giving a child lines because someone else has stolen his satchel.’
Commercial property owners across the nation will need to change their way of thinking as their vacant commercial property stocks start to cost them more money as a result of these changes.