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Empty property surcharge dropped from Scottish business rates reform

The Scottish government has dropped plans to impose a 10% surcharge on business rates charged on long-term vacant properties, it has announced.06 Mar 2019

An advisory group set up to assist the Scottish government in its implementation of the recommendations of the independent review led by businessman Ken Barclay has rejected the recommendation. In a report, it said that the proposed surcharge "would simply further penalise ratepayers holding on to currently unproductive properties"; rather than encouraging properties back into productive use as suggested by Barclay.

The group has also agreed to extend empty property relief on listed buildings to five years rather than the two year period recommended by Barclay. The government will not include this change in the upcoming Non Domestic Rates (Scotland) Bill, but will do so at a later date by way of secondary legislation, according to public finance minister Kate Forbes.

The Scottish government is planning to introduce the bill to the Scottish parliament in the coming weeks, before the Easter recess, Forbes said, in response to a parliamentary question.

"The provisions in the Bill, subject to parliamentary approval, will result in a non-domestic rates system that will better support business growth, long term investment and reflect changing market places," she said.

Property law expert Alan Cook of Pinsent Masons, the law firm behind Out-Law.com, said that the policy changes would be welcomed by the Scottish property industry.

"The Scottish government has acknowledged that the proposed measures to increase the rates burden on vacant premises were not going to achieve their intended policy aims of encouraging empty properties back into use, and were simply going to make bad situations worse," he said.

"The Scottish property industry will welcome these proposals, drawing back as they do from the previous proposals which had caused real concern for property owners and developers," he said.

The Scottish government committed to implementing many of the recommendations of Barclay's review following its publication in 2017, although others have since been dropped. Abandoned recommendations include a proposed power for local authorities to impose a business rates supplement or levy on predominantly online or out-of-town businesses, and the proposed removal of automatic charity rates relief for local authority arms-length external organisations (ALEOs).

The upcoming bill will increase the frequency of rates revaluations from every five years to every three years, beginning with the next revaluation in 2022. Revaluations will be based on the property's rateable value one year before the revaluation takes effect, rather than two years as at present. The bill will also include reforms to improve the appeals system and reduce speculative appeals; and new information-gathering and debt recovery powers for local authorities.

The government will also "provide certainty" to businesses by legislating for Barclay's 'business growth accelerator' scheme, exempting commercial properties from business rates until one year after the property is occupied by its first tenant. The Scottish government introduced this scheme on 1 April 2018 by way of secondary legislation, and last year sought views on whether the scheme should be renewed annually or made permanent.

Business rates are charged on most non-domestic premises including shops, offices, warehouses and factories.