Scottish Property Federation and RICS Scotland outline pros and cons of business rates review
The Scottish Property Federation (SPF) has welcomed the investment incentives contained in the independent business rates review but has raised concerns regarding the complex challenges faced while redeveloping listed buildings.
Yesterday the external Barclay review group published its 130+ page report on non-domestic business rates, proposing 30 recommendations for the Scottish Government to consider including: measures to support economic growth; modernise the rates system; and increase fairness.
Among the specific recommendations made included: more frequent revaluations; reduction of large business supplement from 2.6p to 1.3p, and the institution of a ‘Business Growth Accelerator’ to encourage investment with a ‘one-year holiday’ on new items, e.g. plant and machinery or business expansion.
The recommendation for an annual business growth incentive estimated to be worth £45 million to grow the economy was welcomed by the SPF and follows calls by the real estate industry body for the Scottish Government to attract investment and development to Scotland through new commercial development.
In particular, it is proposed that there should be a one-year relief from business rates for new build properties.
The SPF said this will be particularly welcome for developers seeking to build new offices or industrial properties, or for investors to improve and enhance their existing commercial property stock. The tax incentive will also apply where there is a new tenant in place which should support businesses making commitments to relocate to new or redeveloped offices, shops and industrial premises, it added.
The Barclay Review also proposes an expansion of the fresh start scheme so that it is a more effective incentive to promote town centre businesses.
Despite this “welcome improvement”, the SPF said it will wait to see the further eligibility criteria to be applied for this relief should it be accepted by the government.
The SPF also welcomed the proposal to move to a three-year revaluation cycle and crucially to a one-year gap between the tone date (the date of market rental assessment) and the revaluation coming into effect.
While this should be combined with a review of how various property types are assessed, the SPF said it should make for a closer relationship between the property market and the rates assessment, rather than gaps of up to seven years which allowed the rating system to become hugely disconnected with market reality.
Paul Curran, chairman of the Scottish Property Federation, said: “With the supply of new offices and industrial stock at very low levels, the SPF has strongly argued that the sector needed a positive signal to boost investment and the jobs brought by new commercial developments. The Barclay proposals are hugely welcome and we encourage the Scottish Government to adopt them as soon as possible.
“We very much welcome the review’s recommendations to reduce Scottish large business supplement to the same level as its English equivalent in 2020/21 – therefore bringing about a level playing field across the UK and ensuring that the Scottish real estate market remains competitive with our neighbours south of the border.
“Amongst some of the good news we are concerned about the recommendation on rates relief for listed buildings which often provide complex redevelopment challenges. The loss of this relief after two years may make investors think twice about re-developing such buildings to bring them back into use and we will continue working with Government to make them aware of these challenges.”
Plan to reassess “potentially distorting” Small Business Bonus Scheme were among several positive proposals described by RICS Scotland as “a welcome addition to the debate” surrounding Scotland’s competitiveness in the global marketplace.
RICS Scotland director, Gail Hunter, said: “This report has been keenly anticipated by the sector, and there are a number of recommendations which can be implemented quickly and with relative ease, giving breathing space for many rate payers
“When this review was announced, RICS expressed concerns over the stated aim to ensure recommendations were revenue neutral. RICS did not believe this was the correct approach, on the basis that the Scottish Government does not base this position on meeting any costs from policy changes in relation to other types of taxes.
“Throughout the report, there is recognition of the professionalism of rating practitioners and assessors in Scotland, which RICS strongly supports.
“RICS looks forward to hearing the thoughts of the Scottish Government and, in particular, from the Finance Secretary, who, having made changes to the non-domestic rates regime in the Scottish Budget last year, pledged to move quickly on the report’s recommendations.”
Policy manager Hew Edgar added: “The publication of this report is a welcome addition to the debate surrounding business rates.
“The proposal to introduce rates relief for extended or improved property may encourage expansion and business growth, while three-yearly revaluations would improve fairness and ensure rateable values are more reflective of market conditions. They would also negate the need for transitional relief.
“RICS has previously highlighted the potential of the Small Business Bonus Scheme (SBBS) to distort markets by offering a benefit to small businesses over others or, in some instances, act as a disincentive for small business owners to grow their business. In light of this, the proposal to review this is welcome, and RICS will participate fully in any such work. We will also undertake a full-scale review of the report’s recommendations and findings, and give feedback next month.”