The Scottish Government is to give a much-needed lift to the Scottish commercial property development sector by not applying business rates until a development has secured business tenants for new developments.
Revealing plans to go further than the recommendations of the Barclay Review in a statement to Parliament yesterday, finance secretary Derek Mackay said the government will introduce a Business Growth Accelerator – which will also free all improved business premises from increases in their rates bill for one year.
The move comes after the Barclay Review found that the current system whereby improvements in a property lead immediately to increases in the rates bill, deterred investment.
The announcement forms part of a package designed to stimulate the economy, reduce red tape, improve transparency and reduce tax avoidance, including further transitional relief for hospitality properties and offices in Aberdeen City and Aberdeenshire and confirmation that the new day nursery relief will be set at 100%.
Mr Mackay said: “The Barclay Review presented us with the opportunity to evaluate how we handle business rates and improve methods to make Scotland the most competitive place in the UK for businesses to invest and grow. I committed to respond quickly and three weeks after receiving the report, I am delighted today to put our response into action.
“These new measures will help stimulate the economy and create jobs, which is key to readdressing the inequality that still exists in our society, as well as strengthening Scotland’s business appeal and generating new growth avenues.”
Welcoming the announcement, David Melhuish, director of the Scottish Property Federation (SPF), said: “The decision to not apply business rates for speculative development until the point of first occupation by a new business, is a major shot in the arm for Scottish developers vying for wider UK and international investment for Scottish commercial property. This measure gives developers a real advantage in vying for wider UK or international capital to support investment in Scottish jobs and the wider economy.
“Removing the risk of vacant rates for new development, added to the incentives under the Barclay business growth accelerator proposals, provides certainty for investors of nil rates liabilities until they have an income stream from the development, therefore providing a much-need boost for the competitiveness of the Scottish development sector.”
SPF also welcomed the extension by a year of the cap on business rates rises for the hospitality sector and offices hit by the downturn in the north-east economy but did express concerns with proposals from the Barclay review on listed buildings and further tax penalties on long term empty properties.
Mr Melhuish added: “The loss of rates relief after two years for complex listed building projects may make investors think twice about re-developing such buildings and this is something that we will continue to raise with Ministers as the Barclay review is implemented.”
Gail Hunter, director of RICS in Scotland, said the Barclay Review report’s recognition of the professionalism of the sector and the chartered surveyors working in it has been rightly echoed by Mr Mackay.
Ms Hunter added: “I am pleased that the review group acknowledged that ‘the current structure of the Assessors provides a good model of efficiency and has a key strength in its local knowledge’, and suggested SAA can be trusted to undertake changes to their operations on a voluntary basis.
“Elsewhere, Mr Mackay announced the introduction of General Anti-Avoidance Rule (GAAR) measures. RICS feels this is an ethical issue – one that can be negated by the use of RICS Professionals who abide by a strict Code of Practice and ethical standards.
“On the exemption for day nurseries, expanding opportunities to enhance and grow Scotland’s workforce is a key strategy for RICS, and the reduced rating bills could provide greater flexibility for working parents and guardians, providing the government can guarantee child care savings are passed on to users.”
Meanwhile RICS policy manager in Scotland, Hew Edgar, said steps to introduce three-yearly revaluations will “improve fairness and ensure rateable values are more reflective of market conditions”
He said: “RICS has made this call for a number of years now, and it is reassuring that the Barclay Review Group, and the Scottish Government, has finally listened to the sector.”
On the extension of Fresh Start Relief, Mr Edgar added: “Reliefs and supplements provide economic levers for government to target specific sectors – and we believe these sectors should be identified on the basis of delivering the highest economic impact.
“RICS believes in market transparency and fluidity, which is ultimately created by a stable and consistent regime which extends beyond parliamentary terms. This underscores the importance of lead-in times for the introduction and cessation of reliefs, as these allow businesses to plan for the future and enhance market certainty and confidence.
“RICS had been concerned that the changes to Fresh Start, as outlined in Barclay Review Report, provided market advantage to a particular sector, and this may not be conducive to market fluidity. It is, therefore, reassuring that Mr Mackay extended the scheme to include all properties.”