WIREDGOV

Rate reform boost for small businesses and town centres

COMMUNITIES AND LOCAL GOVERNMENT News Release (089) issued by The Government News Network on 11 May 2007

Local Government Minister Phil Woolas has today (11 May) published new legislation aimed at encouraging empty shops, offices, factory and warehouse buildings back into commercial use as part of a package to create thriving urban centres, renovate empty buildings and promote greater use of brownfield land.

The new measures modernise business rate relief for empty properties and, together with a newly introduced allowance to support the renovation of empty business premises in our most deprived communities and proposals to extend tax relief's on brownfield sites, will better incentivise the re-use, redevelopment or sale of empty commercial property.

Businesses that rent premises will particularly benefit from the changes, which will increase the availability of premises, thereby reducing rents and increasing the UK's competitiveness.

At present, most empty commercial property receives a 100% relief from taxation for the first three months, and 50% thereafter; and empty warehouses and factories receive a permanent exemption from rates.

However, the current system of providing tax relief for buildings that sit empty can no longer be justified when UK office rents are among highest in the world. From next April 2008, the relief will be modernised. Empty commercial property will be liable for the full business rate after an initial rate-free period of three months, or six months for factories and warehouses.

Charities and community amateur sports clubs will be granted a complete exemption from rates on their empty properties - a significant boost in Government support for the charity sector.

Phil Woolas said:
"The reforms will encourage owners of empty properties to bring them back into use, helping to create thriving and vibrant town centres. No-one wants to live or work next to an empty property, and it is frankly daft for the state to subsidise it when commercial rents are so high.

"That is why a package of reforms that will drive down those rents, encourage business growth, and promote brownfield development is needed. As well as reforming empty property rates, from last month a new 100% capital allowance is available for the cost of renovating or converting unused businesses in deprived areas. Together these measures will incentivise and support action to bring empty shops, offices and warehouses back into use.

"Our reforms will also boost Government support for charities and community clubs by exempting all empty properties which they own from rates.

"Reforming the business tax system will help to ensure that the UK remains an excellent place to do business and to invest. Reducing the rate of corporation tax whilst committing to retain the RPI cap on the yield from business rates - which have remained constant in real terms since 1990 - means that the demand for good quality business property and a vibrant urban environment will remain high. This wide-ranging package supports owners, occupiers and investors - but most importantly it supports communities, and it's good for the environment."

Reform of empty property relief was a key recommendation of Sir Michael Lyons' report into Local Government Finance (http://www.communities.gov.uk/index.asp?id=1165334) and has also been recommended by Kate Barker's review of Land Use Planning (http://www.communities.gov.uk/index.asp?id=1504875).

The new measure will help to boost local economies and increase the supply of brownfield sites, helping to preserve greenfield land, and are in line with recent moves by Ruth Kelly to create thriving town centres by ruling out planning proposals which allow more out-of-town development.

Notes to Editors

Full details of the new legislation can be found at: http://www.communities.gov.uk/index.asp?id=1510380

Stats: (Source: CB Richard Ellis 2006/DTZ Research 2004 & 2005)
* Businesses in Manchester or Birmingham pay more to rent their offices than their counterparts in New York, Hong Kong and Milan.
* At the same time, the amount (by value) of empty property in the City of London has doubled since 1999 - up to 16% in 2004-05.
* Other English towns and cities, like Manchester, Birmingham and Slough face similar problems with up to nearly a fifth of all commercial properties empty.1
* Start ups and small companies represent over 99% of all companies in the UK.
* A list of the proportion of empty commercial property by local authority is available at: http://www.communities.gov.uk/index.asp?id=1509781

Business Premises Renovation Allowance (BPRA)
The latest Budget included a new tax allowance available from last month (April) for the renovation of empty commercial property in our most deprived communities. The Business Premises Renovation Allowance (BPRA) provides a 100% allowance for owners renovating factories, offices and shops that have stood empty for more than one year in the Assisted Areas (the most deprived wards in the country as recognised by the EU).
As house prices and commercial property prices have undergone a sustained increase there are very large parts of our towns and cities sitting empty. Relief for empty properties was sensible when demand for land was low but the UK economy has moved on and land is becoming increasingly scarce.
However, the Government recognises that there are still areas where demand for commercial property is low, which is why the reforms to empty property relief will take effect from April 2008 - some 12 months after the introduction of BPRA into the Assisted Areas. This will allow property to be renovated and brought to the market in a state fit for UK business.

Land Remediation Relief
The Budget also included a major consultation on brownfield tax relief's, including proposals to extend Land Remediation Relief (LRR) to include not only chemically contaminated brownfield sites but also sites that have become derelict as a result of long term abandonment and sites contaminated by invasive plant species such as Japanese Knotweed.
LRR is a 150% tax allowance against the cost of remediating contaminated sites, which include some of the worst examples of visual blight. The consultation suggests linking an extended LRR to planning permission - providing a double incentive for sites not only to be cleaned up but also to be brought back into effective use, reducing pressure on alternative, possibly greenfield sites.

Other measures
In addition to these reforms to the tax incentives that affect the built environment directly, the Government has also announced that it will consult on the tax treatment of payments made by leaseholders when they pay a penalty clause to landlords for prematurely ending a lease contract.
This is an important issue for many firms who need to move or to expand but are contracted to carry on a lease. This will help companies to release property that they no longer need or want - helping new businesses to access these premises and existing businesses to take on property in a more flexible way.
In some circumstances, and subject to planning permission, housing associations are also able to attract grant funding to convert empty commercial property to residential use.

1 Manchester (18%) Birmingham (19%) Slough (20%).

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