Business rates system refresh is to be welcomed

As with most things in life, it is difficult to please everyone. However, the commercial property sector sees a number of positives in proposed reforms to business rates on which the Scottish Government is currently consulting.

The consultation paper sets out its proposed approach to various aspects of the Barclay Review of Scottish business rates that require primary legislation. These include a move to three-yearly revaluations, which will be based on the property’s rateable value one year before the revaluation takes effect; a pilot scheme giving certain local authorities a new power to increase rates paid by out-of-town or predominantly online businesses; and the removal of automatic charity rates relief for independent schools.

The government is also seeking views on whether to include the new “business growth accelerator” scheme in primary legislation, or whether to continue to renew this annually by way of secondary legislation. One of the central recommendations of Ken Barclay’s review, the business growth accelerator scheme exempts new Scottish commercial properties from business rates until one year after the property is occupied by its first tenant.

Finance secretary Derek Mackay said the measures set out in the consultation would “ensure we maintain a competitive advantage for Scottish ratepayers”.

In April, the government introduced a number of measures it claims will underpin that competitive advantage. The growth accelerator and 100 per cent relief for new-build properties until first occupied aims to support speculative development and encourage improvements to building stock, and aims to not only attract new investment into Scotland, but also incentivise new developments.

Another significant proposal is reducing the rates revaluation cycle on business premises to three-yearly. Non-domestic premises including shops, offices, wareowners houses and factories have traditionally been revalued for rates purposes once every five years, based on rental values at a date two years before the date the revaluation takes effect. From 2022, the Scottish Government intends to increase revaluations to once every three years.

This is viewed as a welcome attempt to reduce the disconnect between rateable values and real-life property values. Following the financial crisis, many business- complained of an alarming disparity in rates they had to pay based on older property valuations compared to postcrash values and the impact this had on cashflow. A shortening of the revaluation timeline should avoid some of the nasty financial shocks that have emerged after less frequent revaluations took place.

Business rates relief will be restricted for listed buildings to a maximum of two years from 2020, as recommended by the Barclay Review, “to encourage bringing empty property back into economic use”. After two years, 90 per cent rates will be payable in line with other types of empty property, while listed buildings will not suffer the 10 per cent surcharge that will be applied to other properties that have lain empty for longer than five years.

The government’s Barclay Review implementation advisory group recommended that property in the planning process be excluded from these changes; however, the government has ruled out doing so. It believes “this could have consequences if the planning system were abused with properties “parked” in the system to avoid payment of local taxation”. Instead, local councils could be given discretion on whether to apply the changes in order to reflect local circumstances and the consultation is seeking views on this proposal.

We wait to see what emerges from the consultation process and makes it on to the statute book, but on the whole the Scottish Government’s refresh of our business rates system is to be welcomed.

Alan Cook, partner and commercial property specialist at law firm Pinsent Masons

A shortening of the revaluation timeline should avoid some nasty

financial shocks