Empty Rates Shock in Budget

17/05/2007

Owners of commercial properties will not have been pleased by the significant reduction in rates relief for empty commercial properties which was quietly announced in Gordon Brown’s last budget.

Currently, when offices and retail premises are vacant, rates are payable at 50% after the first three months whilst industrial premises and listed buildings attract 100% rates relief regardless of the period that they remain empty. This is to significantly reduce from April 2008 with offices and retail properties receiving 100% relief for the first three months and industrial and warehouse premises 100% relief for the first six months. After this period the full rates liability is payable. What is quite clearly another effort to prop up failing public sector finances was disguised as an incentive to encourage commercial property owners to ensure occupation of their premises. The suggestion that most commercial property owners would deliberately leave premises empty will be viewed as ridiculous by the majority of owners especially those who have commercial mortgages to repay or rely upon the rent for their income.

Whilst a wail of protest has been received from institutions and property companies, this could also have a significant effect on small pension fund SIPP’s which may have a large exposure to one or a small number of commercial properties and could be hit hard in the event of a downturn in the market or difficulties in lettings. Even in a good market it is difficult to achieve a letting and for the legal work to complete within a period of three months and so these measures seem particularly harsh.

A campaign to reverse this is being headed by the head of property in Europe for General Motors but success is considered unlikely bearing in mind that the property sector is too often seen as an easy target for revenue raising.

This change takes us back to the situation in the 1970’s where the removal of rates relief at that time saw widespread destruction of commercial property including roofs being removed from many of the properties especially throughout the Midlands in order to reduce the rateable value and mitigate rates payable. This could again be seen especially if the market dips.

Anyone requiring advice in respect of rates are welcome to contact their local branch of Aitchison Raffety.