Changes Expected Under the New Labour Government – Upcoming Budget
With the new Labour government set to announce its first budget, significant changes are expected in property taxation and empty property rates relief. At ASTOP, we have closely monitored the developments, and here are our predictions on the major reforms, particularly focusing on property rates, exemptions, and regulations. These changes are designed to address the existing loopholes, improve transparency, and encourage ethical practices.
Reduction of Empty Property Rates Relief for Industrial Properties
Current Situation: Property owners currently benefit from a six-month relief period on empty industrial properties.
Possible Change: We anticipate that the Labour government might reduce this relief period from six months to three months, equal to the relief reset period, as in Scotland. Additionally, we think they may consider limiting the ability to claim relief to only once in a 12-month period, to prevent repeated exploitation of the system.
Objective: The idea behind these potential changes would be to discourage businesses from holding onto unused industrial spaces for extended periods without paying rates. By shortening the relief period and restricting claims to once a year, Labour could aim to prevent companies from resetting the relief by temporarily occupying properties, thereby creating a fairer playing field for all property owners, including high street retailers.
Impact: If implemented, these measures would put more financial pressure on property owners to lease or sell vacant industrial spaces faster. The potential introduction of a 12-month limit on claims would help curb any manipulation of the system and ensure relief is applied more fairly across sectors.
Empowering Local Councils to Reject Empty Property Rates Relief
Possible Change: Labour’s pledge to devolve powers to local councils may see them gain the authority to reject claims for empty property rates relief more freely, based on a thorough assessment of whether the claim is justifiable.
Objective: This will ensure that relief is granted only where needed and prevent unfair advantages within certain sectors.
Impact: Local authorities will be empowered to enforce fairer treatment across different property types, and owners may face additional scrutiny when seeking relief, encouraging more efficient and ethical use of vacant spaces.
Crackdown on Artificial Insolvency Practices
Current Concern: Some businesses artificially declare insolvency to avoid paying empty property rates, often with the help of agents.
Predicted Action: Labour is expected to introduce stricter regulations and penalties for those involved in these practices, with agents increasingly hesitant to facilitate such arrangements due to potential criminal liabilities.
Advisory: Businesses are advised to avoid these risky insolvency tactics as enforcement increases and the legal consequences for misuse become more severe.
Addressing Abuse of Charity Rates Relief
Issue: Charitable rates relief was introduced to exempt genuinely vacant charity-owned properties from paying empty property rates. However, some landlords and charities exploit this by keeping them empty for extended periods between very light short bursts of use under the guise of charitable use, minimally occupying them, and then vacating to benefit from relief.
Expected Response: We anticipate Labour will tighten regulations surrounding charity rates relief, ensuring that properties benefiting from this exemption are genuinely used for charitable purposes and capped at say 4 weeks at the start of a tenancy.
Impact: Property owners will need to prove that their vacant properties are truly serving a charitable function, and the Charity Commission is expected to play a more active role in enforcing these regulations.
Lack of Social Value in Vacant Properties
Problem: Many vacant properties, particularly those benefiting from charity exemptions, deliver little to no social value despite receiving rates relief.
Anticipated Reform: Labour has committed to implementing the previous government’s High Street Rental Auctions policy, and is likely to push for more stringent criteria requiring these properties to demonstrate measurable social or community benefits to qualify for relief.
Impact: Owners of vacant properties will need to take a more active approach in proving the value their properties provide to society, or they risk losing their rates exemptions.
Addressing Manipulation of Agricultural Rate Relief
Issue: Agricultural rate relief is often exploited, with some landowners adding minimal agricultural activities, such as placing a few livestock or snails inside shops, offices and sheds, and claiming they are worthy of relief normally for farm spaces.
Proposed Solution: Labour is expected to tighten regulations around agricultural rate relief, ensuring that only genuinely agricultural activities qualify for exemption.
Impact: Landowners exploiting this loophole will likely face more stringent checks, leading to more properties becoming subject to empty rates unless truly used for agricultural purposes.
Incentives for Landlords and Liquidators
Current Challenge: Landlords of long-term vacant properties and liquidators often lack incentives to expedite the surrender of empty units. As a result, these properties remain vacant, contributing to inefficiencies in the property market.
Expected Change: The government may introduce financial incentives to encourage landlords and liquidators to act more quickly in returning vacant properties to the market.
Impact: This would likely speed up the turnover of long-term vacant units, leading to increased occupancy and economic activity.
Increased Regulatory Oversight by the Valuation Office Agency (VOA)
Proposed Reform: The Labour government may task the VOA with issuing clearer and more consistent guidelines on agricultural spaces and small business rates relief, particularly to prevent exploitation of these schemes.
Objective: Simplified rules and tighter oversight will ensure that only genuinely eligible businesses receive relief, reducing misuse.
Impact: Property owners will need to ensure compliance with the new regulations, as failure to do so may result in losing their eligibility for relief.
Introducing Time Limits for New Builds
Expected Policy: Labour is considering a time limit of 3 to 6 months for new builds before they become subject to empty rates, encouraging faster occupancy of newly developed spaces.
Objective: This will drive property developers to fill new buildings more quickly, reducing the number of empty properties and stimulating economic activity.
Impact: Developers may face additional pressure to find tenants or buyers for new properties within a shorter time frame, potentially leading to more competitive leasing strategies.
Promoting Ethical Strategies for Empty Rates Mitigation
Industry Trend: Ethical empty rates mitigation strategies are gaining traction, and the Labour government is likely to promote these further. For example, businesses working with “box shifters” must pay full rates for 91 days and then, on top, the landlord pays an additional 20% for the next 91/183 days.
Impact: Companies will need to adopt more transparent and ethical strategies for managing empty rates, reducing reliance on questionable practices.
