Knight Frank: Postcode lottery for property relief in Scotland could deter investment
New rules being brought in as part of changes to the non-domestic rates system in Scotland could cause confusion for landlords and property investors, particularly in the industrial sector, according to Knight Frank.
Among the changes being brought in as part of the most recent settlement between the Scottish Government and local authorities, empty property relief will be devolved to councils from April 1st, 2023, allowing them to set different rules and conditions for exemption.
Under the current relief regime applied nationally, vacant industrial properties are given 100% for six months, followed by 10% thereafter. However, some local authorities have already proposed changes and others will likely choose to do so in the future, with the reliefs set to be reviewed annually.
In the north east, for instance, Aberdeen City Council has proposed that vacant industrial properties will receive three months of 50% relief on rates, then falling to 10%. By contrast, neighbouring Aberdeenshire Council is planning to maintain the current regime for rates relief, creating quite different systems only a few miles apart.
In the case of two comparably sized vacant industrial properties with the same rateable value located in Westhill and Dyce, the landlord of the property in Dyce would have to pay 56% more in vacant business rates over 12 months.
Many local authorities are still to announce their intentions following the devolution of powers from government, meaning the disparities in property relief seen in the north east could soon arise in other parts of Scotland too.
Scott Hogan, head of Scotland industrial and logistics at Knight Frank, said: “The new rules mean that local authorities can, and likely will, have different reliefs across Scotland, creating an uneven playing field. This will introduce an added degree of complexity for landlords and investors, and will almost certainly create confusion for anyone with property interests in multiple council areas.
“Councils are under pressure to collect more income and, understandably, reducing rates relief may seem like a simple way of bringing in more money. However, I am yet to encounter a landlord who does not want to let their property, so it will be especially punitive to those who are already struggling to secure occupiers and will add risk for any new investors looking at Scotland.
“The changes mean that landlords need to seriously consider how they manage their properties 12 months ahead of any lease expiries to ensure that void periods are kept to a minimum. This includes early engagement on dilapidations – a process that can take months to conclude in itself – and re-marketing of properties at least six months ahead of a possible vacancy.”