Government launches consultation on empty property relief reforms

While seen by many as a dark art, many mitigation solutions are lawful and are used by ratepayers ranging from pension funds to local authorities. Walking down any high street, you will see empty properties being occupied simply for the purpose of triggering a further exemption for rates.

To give this some context, business rates income in England in 2023-24 will be almost £25 billion, providing a large source of income to local authorities. The government has expressed concern that a small minority of ratepayers are exploiting the business rates system. According to a local government association estimate, £250 million (1% of revenue) was lost to business rates avoidance in 2020. The government announced a consultation earlier this year to gather evidence on and propose measures to tackle evasion, avoidance, and “rogue” rating agent behaviour in the business rates system.

The consultation opened on 7 July 2023 and is split into four chapters. The first chapter provides a background and purpose for the consultation. The second outlines proposals on reforms to tackle avoidance of rates through misuse of empty property relief. The third seeks to gather evidence on the types and scale of wider business rates evasion and avoidance and the final chapter consults on the behaviour of business rates agents.

Empty property relief

Unoccupied non-domestic properties are typically liable to pay business rates, except where empty property relief (“EPR”) is claimed. EPR can be claimed in circumstances including:

• for 3 months (or 6 months for industrial properties) following the vacation of a property. The property cannot benefit from a further period of EPR until it is occupied for a minimum six week ‘reset period’ before becoming vacant again (the “reset period exemption”)
• where the ratepayer is a charity, trustee of a charity or registered community amateur sports club (CASC) and, when the property is next in use, it is likely to be used for charitable or CASC purposes (the “next in use exemption”).

Previous consultations suggested that EPR is not working as intended and that abuse of EPR is the most common form of business rates avoidance. In particular, it has been reported that ratepayers claiming the reset period exemption can benefit from sequential rate-free periods despite minimal or superficial occupation of the property, such as arrangements whereby the property is temporarily used for storage purposes. While this type of occupation has been held to be lawful by the Courts in several judgments (see Principled Offsite Logistics; Makro; PHE v Harlow) the government is concerned that the purpose of the legislation is being circumvented.

Concerns by stakeholders indicate that the next in use exemption is also being misused to avoid paying business rates. There is currently no requirement that a charity occupies the property for relief to be claimed and no recourse exists to backdate the rates if a charity does not subsequently occupy a property. Examples of abuse include ‘artificial’ charities being used with no real intention of occupying a property and legitimate charities being misled into occupying properties which are unsuitable. 

Proposals for EPR reforms

The government is seeking feedback on four potential reforms to the reset period exemption:

• change the reset period from 6 weeks to 3 or 6 months. It's suggested that a longer reset period may make avoidance arrangements financially unviable and dissuade ratepayers from avoiding rates.
• introduce a limit to the number of times a property can benefit from EPR in a given period. This would mean that ratepayers would no longer be able to trigger the reset period and would instead benefit from a single rate free period of 3 or 6 months in any given period of time. 
• amend the Non-Domestic Rating (Unoccupied Property) Regulations 2008 and specify conditions for what can be considered as occupied property for the purposes of rates relief. A suggested condition would be to require that more than 50% of a property’s floor space is occupied.
• provide funding to local authorities and enable them to use existing statutory power of discretion to award or withhold relief to ratepayers.

The government is seeking feedback on three potential reforms to the next in use exemption:

• scrap the next in use exemption. This would mean that ratepayers could no longer claim relief if a property is to be occupied or likely to be by a charity or CASC.
• create additional eligibility criteria for ratepayers claiming relief. The consultation paper does not provide any suggested criteria.
• provide funding to local authorities and enable them to use existing statutory power of discretion to award or withhold relief to ratepayers.

Wider business rates avoidance and evasion

This chapter invites stakeholders to identify wider avoidance and evasion behaviours and suggest actions to mitigate these behaviours.

The government is also seeking feedback on the perceived effect new duties created by the Non-Domestic Rating Bill (“NDR”) will have in combatting avoidance and evasion practices. If passed, the NDR will require ratepayers to report details (including occupation information and timings of occupation) to the Valuation Office Agency (VOA).

Rogue agents

This chapter seeks further evidence of “rogue” agents who seek to exploit ratepayers and the business rates system. Rogue agency behaviours include:

• publicising avoidance schemes
• taking advantage of small business owners by offering to claim reliefs on their behalf in exchange for unfavourable contracts
• putting clients at risk of penalties by failing to comply with VOA processes.

Have your say

You can respond to the consultation by completing the online survey here. The consultation will run for 12 weeks, closing on 28 September 2023.