Many were left disappointed by the Spring Budget's inaction on Business Rates with no amendments to the planned increase to the multiplier, which is set to rise from 0.512 to 0.546. The rise is based on September 2023's 6.7% inflation rate despite the Office of Budget Responsibility predicting that in a matter of months inflation will fall below 2%.
However, the Spring Budget did in fact make a sweeping change to the Business Rates system with the results of the Government's consultation on Business Rates Avoidance and Evasion. From 1st April 2024, the "reset period" for Empty Property Relief (EPR) is increasing from 6 weeks to 13 weeks.
The Government estimated EPR to be worth £1 billion in 2023/24 alone, providing relief from empty rates to property owners and leaseholders in select situations.
One of the most notable situations being once a property first becomes vacant, an exemption of either 3 or 6 months will be applied, depending on the property class. This has historically been exploitable as it is possible to receive the exemption, nominally occupy a property for 6 weeks (the "reset period"), and then receive the exemption again.
the Local Government Association estimated Business Rates avoidance costs Local Authorities £250 million
It is clear this is not the intention of the exemption; the Government have stated the exemption is "intended to support property owners while they market or refit a property before it comes back into use". It can be fairly assessed that short term occupation for the purpose of the exemption is a misuse of the Business Rates system.
This is set against a background of real problems with avoidance and non-payment within the Business Rates system, in 2019 the Local Government Association estimated Business Rates avoidance costs Local Authorities £250 million per annum, further, the study found on average almost half of avoidance is a result of this short term occupation for the purpose of an exemption.
By increasing the reset period, the Government aims to reduce the financial incentive for this practice. The treasury has estimated this change will raise an additional £40 million a year. A cost that can only be intended to be levied against landlords, developers and property owners.
This reform has been criticised. It has been correctly stated that no property owner wants their property empty but, due to a failing market, they are unable to actually fill the space. So in effect, property owners are set to be punished twice, facing an additional £40 million in business rates costs with no rental income.
the Government must be cognisant to property owners and amenable to potential solutions
It is clear no party wants a Business Rates system rife with avoidance. It is clear no property owners purposely leave their building empty when there is a viable tenant. It is clear no party wants as many empty properties going to waste as there currently is (there are an estimated 165,000 privately owned empty commercial properties).
Our view is that the increase to the reset period is a positive step in combating avoidance, but we also believe the Government must be cognisant to property owners and amenable to potential solutions that would address all the concerns stated above.
A potential solution that satisfies all the above concerns may seem a little far-fetched and too good to be true, however, Holloway Bond specialise in out of the box thinking.
We have a court tested solution that helps mitigate liabilities for property owners whilst they search for long term tenants as well as filling those empty spaces; letting people benefit and enjoy properties when they would be otherwise collecting dust.
If you would like to find out more about our solution or discuss the impact of these changes to your business rates, contact us on 0208 0950 990 or info@hollowaybond.co.uk.
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