Business rate rule changes introduced in Scotland tomorrow could see industrial property owners choose to demolish vacant buildings rather than pay up, an expert said yesterday.
Ken McCormack, senior director and head of business rates in Scotland at commercial property giant Bilfinger GVA, also warned a reduction in rates relief for vacant buildings in the industrial market may hurt investment and development.
Unoccupied properties currently receive full relief of rates but this will change from tomorrow. In future, full relief will be available for just six months before dropping to 10%.
Mr McCormack said: “This will result in owners of an empty property with an occupied rates liability of £100,000 a year, currently receiving full relief, having to pay £90,000 a year.
“It is likely that some owners, faced with a rates bill for a vacant property, may opt to demolish their warehouses instead of having to pay rates on them.
“We’re in a situation where it can be challenging to sell industrial property and these changes could have a negative effect on investment and development.”
Another change sees the uniform business rate (UBR) increase from 48p to 48.4p per pound of rateable value, keeping Scotland in line with England.
A large property supplement rises to 2.6p in Scotland, double the English figure, which Mr McCormack said meant a 3.4% overall increase in Scottish rates bills.
The threshold for a “large” property is one with a rateable value of more than £35,000, leaving most businesses north of the border vulnerable, he added.
The Scottish Retail Consortium (SRC) estimates the increase in the supplement is likely to add an extra £60million a year to firms’ rates bills, and affect one in every eight commercial premises in Scotland.
David Lonsdale, director for the trade body, said yesterday the rise in the supplementary tax was “both odd and troubling” after a large rise in shop vacancies north of the border.
He added: “Increases in business rates have been wholly out of step with the other main local property tax, with rates tied to an escalator while council tax has been frozen.
“Retailers stump up a quarter of all rates paid and this is ratcheted up year after year with little or no regard to trading or economic conditions.
“The retail industry is facing profound change and other routes to market – notably online – are increasingly more attractive and far less costly than maintaining a bricks and mortar presence of shops. This places a question mark over likely future tax revenues from business rates.
“We’ve yet to hear a convincing explanation as to why firms operating from medium and larger sized premises in Scotland are better placed to be forking out more in rates than firms in comparable premises elsewhere in the UK.
“Our fear is that this Scotland-only surcharge could open the door to even higher business taxes in future if there is a shortfall in devolved tax revenues.”
SRC has urged all political parties contesting May’s Scottish parliamentary election to commit to a business rates system which “flexes” in changing economic conditions.
