Alan Cook: Proposed business rate measures are mixed bag

The Barclay review said private schools should be as liable as their council-run peers. Picture: Christopher Furlong/Getty Images
The Barclay review said private schools should be as liable as their council-run peers. Picture: Christopher Furlong/Getty Images
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As Scotland’s schools return to the classroom after the lengthy summer break, the commercial property and investment market may be forgiven for collectively assessing Ken Barclay’s review of Scotland’s business rates system as “good, but could always do better”.

Indeed, private schools will likely take a much more negative view of the former RBS chairman’s report, which among its 30 recommendations to the Scottish Government, said independent schools should not avoid paying rates because of their charitable status and should be held as liable as council-run schools.

Commercial properties are usually revalued for rates purposes every five years

• READ MORE: Scottish private schools face £5m business rate tax hike

Also impacted by the proposed change will be universities that compete with private firms (for example, letting student accommodation during holidays) and local authority arms’ length external organisations which operate leisure or arts facilities. While the Barclay Review of Business Rates did not answer everyone’s prayers, it did offer up some cheer with some welcome measures.

Commercial properties are usually revalued for rates purposes once every five years, based on rental values at a date two years before that revaluation takes effect. A recommendation to move to three-yearly evaluations based on values the year before should reduce the shocks – and pressure on cash flow – caused by five-yearly revaluations which resulted in significantly increased valuations, and therefore rates, for some properties.

However, as the review was instructed by the Scottish Government that its recommendations had to be tax neutral overall, they have had to find additional revenue sources within the rates system – and this goes some way to explain why they have proposed to “fix anomalies” by applying rates in places where none are currently payable. This would include reforming charities relief to restrict it to a smaller number of situations and recipients.

• READ MORE: ‘Real change needed’ as business rates review reports

The review group ruled out more radical reforms such as changing the basis of the tax to one based on land values or performance measures, or taking into account the impact of the digital economy, saying the current system best fits the principles of fairness, consistency, transparency, simplicity and accountability at the heart of the review.

The reform group has recommended a new 100 per cent rates relief for nurseries in order to support childcare provision, chiming with a well-established government policy of expanding early learning and childcare. A general anti-avoidance rule should be created to reduce avoidance, and the appeals system modernised, says the report.

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Developers and investors, especially in the speculative space, will be heartened if the Scottish Government accept the recommendation that a new 12-month exemption from paying rates should apply for new-build properties. The recommendation is that this one-year relief period would also apply to buildings which are expanded or refurbished, in the belief it will incentivise investment and development.

Measures designed to “encourage bringing empty property back into economic use” are much more concerning. The report recommends restricting relief for listed buildings to a maximum of two years. However, by their very nature these properties can lie empty for longer while sympathetic development plans are drawn up.

A further proposed 10 per cent increase in the rates liability for property that has lain empty for over five years also causes some concerns, on the basis that if property has been unable to be let for that length of time, then the additional charge will simply make a distressed situation worse.

Scottish Finance Secretary Derek Mackay has said the Government will respond swiftly to the recommendations in the report and the industry will await his decisions with great interest.

• Alan Cook, partner and commercial property specialist at legal firm Pinsent Masons

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