Revaluation could land business with a big bill - Brian Rogan

While the business community may be distracted by the Scottish Government’s new Wealthier, Happier, Fairer paper - first in a series to act as a prospectus for the new independence campaign - perhaps their focus should be on another document.
Brian Rogan, Senior Director and Head of Rating, CBRE ScotlandBrian Rogan, Senior Director and Head of Rating, CBRE Scotland
Brian Rogan, Senior Director and Head of Rating, CBRE Scotland

The Scottish Government’s Medium Term Financial Strategy paper evealed that the Scottish business community could face an almost £1bn increase in non-domestic rates (NDR) costs over the next four years.

The paper and the figures stem from Scottish Fiscal Commission (SFC) forecasts and suggest that the SFC agreed with the Scottish Government that the 2023 Revaluation would be revenue neutral, i.e., after the 2023 Revaluation the Scottish Government will collect the same from rates as they did before the Revaluation (adjusting for inflation). However, the figures suggest that there could be above inflationary increases in rates income next year which may concern businesses across Scotland as to where that overage will come from.

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The paper states that based on current expectations about the tax base, an increase in the tax rate, or poundage rate as its most commonly known, will be required.

There is however a lack of detail in the document over what those expectations about the tax base were and therefore, I would question whether the figures can be relied on with a wholesale Revaluation of all Non-Domestic properties due in less than one years’ time. The document also gives no indication over what sectors the burden of the extra £1billion will fall on hardest.

However, if the forecasted figures are solidly founded then most businesses could be excused for being concerned by the imminent need to find extra income to cover the potential extra rates charges on their properties. Many questions remain on the veracity of the figures and expectations, but what seems clear is that there is a huge increase in the overall amount of Non-Domestic Rates that the Scottish business community may need to pay in the coming years.

Something that is not able to be budgeted in the forecasts is what impact the devolution of unoccupied rates relief to local authorities will have on the figures. In April next year, each local authority will have the power to set their own rates relief schemes for unoccupied properties. What the fiscal commission can’t do is make forecasts on how local councils will use these powers. This could add further burden on landlords and developers of commercial properties.

The exercise of revaluing all Non-Domestic properties for the 2023 revaluation is currently being undertaken by the Scottish Assessors and will see businesses’ properties revalued for the first time since 2015. We assume some indicative estimates of changes in values (sector-by-sector) were given to the Scottish Government and Fiscal Commission to make assumptions on the changes in the tax base that the report referred to.

A lot has changed in the property market since 2015 and we expect some sectors, such as the office markets in Glasgow and Edinburgh, to see an almost doubling in their Rateable Values after the revaluation. On the other hand, high street retailers might find the 2023 revaluation will reduce their existing rates costs and as such provide a needed boost for the sector.

Questions remain about the Scottish Government’s mid-term NDR forecasts, but regardless, all businesses need an immediate review of their own property holdings to see how the 2023 revaluation will impact them.

Forewarned is forearmed.

Brian Rogan, Senior Director and Head of Rating, CBRE Scotland

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