Empty Property Tax Hitting Commercial Landlords (News 12th August 2008)

Assetsure News 12th August 2008

Empty Property Tax Hitting Commercial Landlords

A new tax on empty buildings and properties is hitting businesses, putting off commercial developers from implementing new builds, investing in re-generating the of old (empty) commercial buildings and causing an increasing un-economic number of buildings to be demolished. Businesses, large and small that occupy commercial premises, that includes empty units, are having to pay the new empty property tax, which now takes up a very large portion of the average lease. Unrented commercial buildings have gone up 22% in 2 years to over 9%.

The April 1st 2008, tax change in 'empty rates relief' now means that, as the number of empty properties increase from the economic slowdown, the greater number of commercial landlords are paying more tax on property that makes them no rent. The changes mean that industrial property that remains empty for more than 6 months, now face 100% rates bills and the same applies to commercial property after three months. Prior to the tax changes, owners of empty commercial office space and commercial buildings, received 50% business rate relief.

It has been widely condemned as a Government Ł1bn ‘tax grab’. The Treasury estimated the implementation of the tax will raise Ł950 million in 2008/9 and another Ł900 million in 2009/10. Due to the falling tenant commercial occupancy rates it is likely that an additional Ł142.5m could now be raised in tax revenues. 35 rebel MPs have already signed an Motion for the tax to be axed. Labour MP Chris Mullin said the tax would "send firms bankrupt within months".

Many small commercial business owners face bankruptcy because they cannot afford to pay the new tax without rent to offset it against. Commenting on the removal of the relief, David Frost, Director General of the British Chambers of Commerce, said:-

"We are very concerned that removing tax relief on empty buildings will act as a brake on regeneration in many of the country's most deprived areas..." "The relief was an incentive for businesses to bring empty commercial and industrial property back into use and it has benefited many of the poorest communities.... "At a stroke, the government's new policy will hit disadvantaged areas and create financial insecurity for companies currently in possession of empty properties. This is little more than another tax hike on business."

Prior to the empty rates tax changes, landlords held onto commercial property earmarked for possible redevelopment and let on a short term lease basis to maintain the investment. The speculative risk has now become uneconomical in a bear property market, forcing developers to accelerate demolition, at a time when new builds are not keeping up with demand..

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