Scott Hogan: Why Scotland’s property relief changes are policy in a vacuum
Scott Hogan discusses the recent changes to Scotland’s business rates regime, with a focus on the devolution of power to alter empty property relief to local authorities, and the varied impact of these changes on commercial property owners and occupiers across different regions.
April brought in a wave of new changes to Scotland’s business rates regime – a fact perhaps easily forgotten, with many eyes on other government decisions and political developments. However, these decisions could make a significant difference to owners and occupiers of commercial property – after all, rates are typically the second highest property cost after rent.
While there are a number of technical changes to the rates system – some of which are positive moves and others have their own potential flaws – it is reliefs that are drawing the most attention. From 1 April 2023, power to alter empty property relief was devolved to local authorities allowing them to determine their own reliefs and exemptions.
The relief regime that applied nationally up until this point provided owners of empty properties with 50% relief on business rates for three months, 100% relief on industrial properties for six months, followed by 10% thereafter. While the majority of local authorities are yet to make any changes, some have already implemented new rules.
For instance, Aberdeen City Council has reduced empty property relief on industrial properties to now align with all commercial properties in that they will receive only three months relief at 50%, as opposed to six months at 100% relief. They have also removed open-ended 100% relief for vacant Listed buildings, reducing it to 10%.
More local authorities may follow Aberdeen City Council’s example, with reliefs set to be reviewed annually. If they do so, it could create an uneven playing field in terms of owners vacant property rates liabilities. The differences between reliefs in Aberdeen and Aberdeenshire mean that an industrial property with the same rateable value in Dyce is paying 56% more in vacant business rates over 12 months than a landlord in Westhill, just seven miles away.
This is just one example of the quirks that will be thrown up by devolving these powers to local authorities. Another can be seen in Renfrewshire, where from April unoccupied listed buildings now receive 100% relief for six months and 10% thereafter. The Council says this is to stop landlords ‘letting these properties stand empty for years’ and ‘to bring them into economic use’.
There are two issues with this line of thought, which is typical of the arguments made for targeting landlords. Firstly, it does not take into account the large number of listed buildings that are owned by the public sector. One council department will simply end up with a rates bill to pay to another, alongside the sizeable portion of listed buildings likely owned by other arms of government.
The second is the idea that commercial property owners prefer their building to be vacant in the first place. No landlord I have met wants an empty property – they want to lease it out and collect rent. It is the market preventing them from finding a tenant.
In the current circumstances, many organisations are under ever-increasing financial pressures. Landlords are seen as soft targets and, in many cases, they are funds that manage all of our pensions. So, while property relief may be seen as an easy way of generating income, it requires a greater degree of nuanced thought as to how these localised policies impact on commercial property market activity.
Scott Hogan is head of Scotland industrial and logistics at Knight Frank