The Chancellor confirmed in the Spring Budget that in England from 1 April 2024, the period of continuous occupation required to reset the 100% three-month exemption from empty rates (six months for industrials), is to be extended from six to thirteen weeks.
The announcement means the cost of holding long term empty property, said to be worth £35m per annum, will almost double. It could have been worse, as the Government resisted calls for limiting the number of times empty relief can be claimed.
In their consultation response, Business Rates Avoidance and Evasion, the Government is clearly irritated, commenting that they hope their actions will disincentive “box shifting” by which landlords repeatedly occupy properties in order to claim more than a single period of empty relief.
At BNP Paribas Real Estate, we were concerned with the tone of consultation response, which demonstrated a lack of awareness as to why the rule exists in the first place and little consideration of why empty building owners find themselves in the position of needing to mitigate their rates with short term occupations. It also talks about avoidance, which Government defines as “...bending the rules of the tax system to gain a financial advantage...”. It is hard to perceive how an owner of an empty property is gaining an advantage when they are not taking a rental income from an asset. Mitigation is a more apposite term adopted by the Courts.
Most respondents, including landlords and rating agents were in favour of extending the reset period, as well as limiting the number of times the exemption could be claimed. In view of this consensus, it would have been more transparent if the Government had stated the motives of all the stakeholders. Local authorities are acknowledged as having an eye on revenue, whereas the private sector was asking for a longer exemption period to balance an extended reset period. This is certainly what BNP Paribas Real Estate wanted, reflecting the principles of the balanced tax system introduced some decades ago whilst reflecting current market challenges.
Alarmingly, further changes seem to be in the offing as another consultation has also been announced, this time on the merits of a general anti-avoidance rule. We await further information about this proposal, although our concern is the Government may consider utilising dormant legislation to enable the condition of a property to be disregarded if it is rendered incapable of occupation.
The Chancellor believes he has struck a balance between levelling the playing field whilst protecting the public purse. Such a compromise is very disappointing. Although it may go some way to towards preserving local authority revenue streams, a number economic and societal issues need to be addressed. A cohesive urban renewal strategy in the face of technological and environmental change is needed, instead of taxing the owners of empty buildings who are quite often pension funds with annuity commitments.
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