IPTI | Update on U.S. & EU Property Tax Issues: December 2022

The EACC, in partnership with the International Property Tax Institute (IPTI), wants to keep its members up to date with the latest developments in property taxes in the USA and Europe. IPTI has put together below a selection of articles from IPTI Xtracts; more articles can be found on its website (www.ipti.org).

United States

Working From Home Could Eventually Eliminate $522 Billion in US Office Value, Study Finds

New York Could See Largest Drop

Remote working is expected to wipe out about $522 billion of U.S. office value by 2029 compared to its pre-pandemic level, with New York the hardest hit, according to a study. More than 2½ years since the pandemic made working from home more common, a study has found employees being in the office only some or no days comes at a heavy cost to the value of U.S. office property that could linger for years.

Based on the assumption that some form of work from home is likely here to stay, the loss of value in the U.S. commercial offices may total about $522 billion by 2029 from its pre-pandemic level in 2019, according to a study published Thursday by business school professors at Columbia University and New York University. New York, the largest U.S. commercial market, alone will lose in value nearly $56 billion, more than one-tenth of the U.S. total, according to the 82-page study, titled “Work From Home and the Office Real Estate Apocalypse.”

Remote work “changes the risk premium on office real estate,” the study said. “The pandemic has had large effects on both current and expected future cash flows for office buildings. These valuation changes have repercussions for local public finances and financial sector stability. … There’s substantial uncertainty about future office values.”

Columbia professor Stijn Van Nieuwerburgh, one of the authors of the study, told CoStar News in an email the headline numbers could be revised because limited market data requires them to “scale up” to “obtain a market-wide number for value destruction.”

At the start of the pandemic, when the physical office use rate at one point plunged to 10% in March 2020 from 95% in February 2020, the study found the value of U.S. office property fell at an even faster rate, at 45%, according to the report, citing security firm Kastle System’s keycard access swipe data.

The office use rate has since recovered to 47.5% in a 10-city average, according to Kastle’s latest data. New York still has more than half of its office space for workers unused, with only 47.2% reported as of Nov. 9. And it comes as real estate brokerage CBRE found indications of less demand for some office space in cities than in suburbs.

As remote working has led some companies to exit their leases or reduce space, office lease revenue dropped 17 percentage points between December 2019 and May with two-thirds of that coming from space declines, according to the study, adding rent decreases made up the rest. The study also found there’s a correlation between companies with more work-from-home days and cutbacks to their office space.

To be clear, there’s no guarantee office property would remain solely in that use for the next seven years of any steady drop in values, and that remote and hybrid working policies of companies will stay in place. Even so, the total footprint of newly signed leases in the study’s database fell from 253.43 million square feet per year just before the pandemic to 59.32 million square feet in May, with rents falling 13.16% between December 2019 and December 2021 before reversing to pre-pandemic levels by the end of 2021, according to the report.

“Rents may not have bottomed out yet,” the study said, adding nearly 62% of U.S. leases and almost 72% of office leases in New York didn’t come up for renewal in 2020 and 2021. That’s not to mention U.S. office vacancy rates are at 30-year highs in several major markets, including 21.5% in New York in the second quarter, according to the study.

In an encouraging sign, the study also found the so-called flight-to-quality trend of corporate tenants seeking well-located properties with appealing amenities, especially as companies want to entice workers back, is real. “Higher-quality buildings, those that are built more recently and have more amenities (informally called Class A+), appear to be faring better in the pandemic,” according to the study.

“Their rents on newly signed leases do not fall as much or even go up, in contrast with the rest of the office stock. … Lower-quality office appears to be a more substantially stranded asset, given lower demand, raising questions about whether these assets will ultimately need to be repurposed.”

While the average office asking rent in the United States was “largely unchanged” at $35.23 per square foot in the third quarter, effective rents for top-tier properties in some of the largest markets have risen by 4.2% year-to-date through third quarter, according to a report from the real estate services firm CBRE. In another sign of the negative effect of remote working, CBRE found that vacancy rose at a faster pace in downtown areas versus the suburbs, adding the 17.4% U.S. downtown vacancy rate marked the second straight quarter that it topped the suburbs, which totaled 16.9% last quarter.

Amid worries about higher interest rates and a potential recession, third-quarter leasing has fallen for the third straight quarter, according to CBRE. Major corporate tenants including Facebook parent Meta and Amazon have announced job cuts with plans to reduce or pause real estate expansions.

During the widespread emergence of remote work, real estate investment trusts including New York’s SL Green Realty, Manhattan’s largest office landlord, and Vornado Realty Trust have witnessed their values slide. Vornado’s chief executive, Steven Roth, recently said its stock is “stupid cheap.” With workers not back to the office, retail and other businesses that cater to them also have been hit hard despite some signs of improvement in markets such as New York.

All that will have “important implications for local public finances,” the Columbia and NYU study found. For instance, it noted the share of real estate taxes in New York’s budget was 53% in 2020, 24% of which came from office and retail property taxes.

“The fiscal hole left by declining [central business district] office and retail tax revenues would need to be plugged by raising tax rates or cutting government spending,” the study said. “Both would affect the attractiveness of the city as a place of residence and work. These dynamics risk activating a fiscal doom loop.”

Meanwhile, with office properties often financed with debt, which sits on banks’ balance sheets and in portfolios of debt on the commercial mortgage-backed securities market, large declines in value would have consequences for institutional investors and for financial stability, according to the study.

New York: ‘Zombie’ office towers teeter as interest rates rise

During a prolonged bull market fuelled by historically low interest rates and nearly free money Doug Harmon and his team presided over record-breaking sales for many of Manhattan’s trophy office buildings. No longer. These days, Harmon, the chair of capital markets at Cushman & Wakefield, the real estate services firm, spends much of his time performing “triage”, as he puts it.

The world’s largest office market has of late endured the departure of big-spending Chinese investors, the rise of Covid-era remote working and the economic fallout from the Ukraine war. Now there is mounting concern that the dramatic rise in interest rates will be too much for many owners to sustain and that a long-awaited reckoning is drawing near.

“There’s a consensus feeling that capitulation is coming,” said Harmon, who likened rising rates to petrol igniting an office firestorm. “Everywhere I go, anywhere around the world now, anyone who owns office says: ‘I’d like to lighten my load.’”

The industry is rife with talk of partnerships breaking up under duress, office buildings being converted for other uses and speculation about which developers may not make it to the other side. Meanwhile, opportunists are preparing for what they believe will be a bevy of distressed sales at knockdown prices, perhaps in the first quarter of the next year.

“We’re going to see distress,” said Adelaide Polsinelli, a veteran broker at Compass. “We’re seeing it already.” Since January, shares of SL Green and Vornado, two publicly traded REITs that are among New York’s biggest office owners, have fallen by half.

Fresh signs of strain came this week. Blackstone, the private equity firm, told investors it would restrict redemptions in a $125bn commercial real estate fund. It also emerged that Meta, the parent company of Facebook, would be vacating about 250,000 square feet of space at the new Hudson Yards development to cut costs. It and other tech companies had been among the last sources of expansion in Manhattan’s pandemic-era office market.

The small collection of offices like Hudson Yards — with new construction and the finest amenities and locations — are still in high demand, according to Ruth Colp-Haber, who, as head of Wharton Properties, consults companies on leasing.

But, she warned, the real “danger lurks downstairs in the class B and C buildings that are losing tenants at an alarming rate without replacements.” All told, Colp-Haber estimated that roughly 40 per cent of the city’s office buildings “are now facing a big decision” about their future.

Prognosticators have been forecasting doom for the office sector since the onset of the Covid pandemic, which has accelerated a trend toward remote working and so decreased demand for space. According to Kastle Systems, the office security company, average weekday occupancy in New York City offices remains below 50 per cent.

A particularly dire and oft-cited analysis by professors at Columbia and New York University estimated that the collective value of US office buildings could shrink by some $500bn — more than a quarter — by 2029.

The sector has so far defied such predictions. Leases generally run for seven to 10 years and so tenants have still been paying rent even if few of their workers were coming to the office. In the depths of the pandemic, lenders were also willing to show leniency or, as some put it, to “extend and pretend.”

But the sharp rise in interest rates may, at last, force the issue. Financing has suddenly become more expensive for owners and developers — if it is available at all. “If you have debt coming due, all of a sudden your rates are doubled and the bank is going to make you put money into the asset,” one developer said. Lower quality buildings may be the most vulnerable. As leases expire, many tenants are bolting or demanding rent reductions. Even as their revenues dwindle, owners must still pay taxes and operating expenses.

Bob Knakal, chair of investment sales at JLL, sees a growing horde of “zombie” office buildings in Manhattan that are still alive but have no obvious future. The typical zombie may have been purchased generations ago and supplied monthly cheques to an ever-expanding roster of beneficiaries.

“Now the building is not competitive from a leasing perspective because it needs a new lobby, and new elevators and windows and bathrooms. And if you went to those 37 people and said: ‘You know what? You have to write a cheque for $750,000 so we can fix the building up.’ These people would have a heart attack,’” said Knakal.

If there is debt to roll over, lenders will require the owners to contribute more equity to make up for the building’s declining value. “There’s a reckoning that’s going to come,” said Knakal, “and I think it’s going to be challenging for a lot of these folks to refinance.”

That appears to be spurring a flurry of backroom discussions between borrowers, banks, private lenders and others. Manus Clancy, an analyst at Trepp, which monitors commercial mortgage-backed securities, likened the situation to that facing brick-and-mortar shopping malls five years ago as their prospects deteriorated. Many ultimately fell into foreclosure. Whether an office loan could be refinanced, he predicted, would depend on the newness of the building, its occupancy levels and the length of the leases. “There isn’t a lot of distress, per se, there’s a lot of concern,” he said.

Some obsolete office buildings may be converted to residential, which, in theory, would help to ease New York City’s chronic shortage of housing. But that is easier said than done, say many experts. It would require zoning changes. Even then, many office buildings may not be suitable candidates for residential conversions — either because their floor plates are too large, their elevators are wrongly situated, their windows do not open or their neighbourhoods are unappealing. To make such projects worthwhile, owners would have to sell at deep discounts.

That has not happened — at least not publicly. “Nobody wants to be the first one to dip their toe in this because nobody wants to set a new low unnecessarily,” David Stern, founder of Townhouse Partners, a consultancy that performs due diligence for commercial real estate underwriters, said. “That’s what everyone is waiting for: this incredible revaluation.” In more colloquial terms, a developer quipped that some owners, accustomed to holding properties for years, had not yet “seen Jesus” — but they would.

In the meantime, some recent transactions have hinted at the market’s shift. In July, RXR and Blackstone sold 1330 Sixth Avenue for $325mn, down from the $400mn RXR paid in 2010. In 2014, Oxford Properties, a Canadian investment firm, paid $575mn to win a bidding war for 450 Park Avenue, a 33-story tower. It was sold by a subsequent owner in April for $440mn. “What is it worth today?” one broker asked. “Less than $440mn.”

New York: The Property Tax Reform New York City Needs

Expect Governor Hochul soon to come under enormous pressure both from subsidized housing advocates and politically-wired developers to restore an expired development property tax break.

A coalition of affordable housing progressives and politically-connected developers will push for the subsidy known by its housing code number, 421a. But this quick fix for a dated and distorted property tax regime in the nation’s largest city misses the point: the city’s overall property tax system desperately needs reform. And city spending is too high.

Development is discouraged — absent special tax breaks — because it’s taxed at the highest level in a complex system. Commercial property gets hit hard, as well. Single-family homes face a higher effective tax rate than Park Avenue condos.

The underlying problem is this: in contrast to most American cities, New York property valuations have not kept up with true market value. As a result, low-income minority neighborhoods and much of Staten Island reflect dated values that are too high.

In a report issued just before he left office, Mayor de Blasio’s Advisory Committee on Property Tax Reform (yes, he had one), called for thoroughgoing change, including taxing all residential property — from single-family homes to apartment buildings — at the same rate, “regardless of property type.”

The city’s Independent Budget Office has estimated that such a reform would translate to a median tax reduction of $1,100 for some 500,000 property owners.  It need not mean higher rates for anyone, however — if New York City were to get serious about cutting its proposed $100 billion budget.

This is a good time for tax fairness — but not tax increases. We are already seeing the burden of city and state income taxes driving the affluent to Miami.  There is no shortage of good budget targets: low health care premiums for city workers and retirees, bloated Department of Education administration, and outsized pension promises.

Instead, the city is making minor cuts to the school system, while begging Albany to restore a special tax break contingent on building more of something of which the city already has too much: subsidized housing. Those who want to see new housing of any kind built in New York may be apt to back whatever it takes to do so. It’s a temptation to be resisted.

New York simply has too much, not too little, subsidized housing. More than a third of New York City’s three-plus million housing units are already buffered in some way from market forces. These include 180,000 public housing apartments and nearly a million rent-regulated units.

Subsidies without time limit undermine the incentive to increase earnings or move on to a better opportunity. Such distortions inhibit the turnover and new construction that characterize dynamic housing markets like those of Texas and Florida, to which New Yorkers are migrating,

New York’s “market” sends the message that residents should try to score a good rental deal. Housing policy favoring subsidized units discourages ownership. Only 31 percent of city residents own their own dwelling, roughly half the nationwide rate. Ownership, of course, is a proven way to wealth, not dependency.

The expiration of 421a would best be the occasion to take stock of both the city’s overall bloated budget and opaque property tax system and to rethink New York’s love affair with subsidized “affordable” housing. If the latter were really the ticket to inexpensive housing, New York would not have to keep subsidizing more.

This should be the time not to tinker at the edges of a flawed New York property tax system but to rethink and reform it, while, at the same time, cutting a bloated city budget whose costs squeeze those who pay the bills. That’s what makes the city unaffordable in the first place.

California: San Francisco puts a price on remote work’s hit to property tax revenue—and it’s hundreds of millions of dollars

San Francisco could lose around $200 million by 2028 in property tax revenue because of offices emptied as people work from home, under the worst-case scenario detailed in a report from the city’s chief economist Ted Egan.

The hub of the technology industry is experiencing record office vacancies. They could rise to about 31% by the fourth quarter next year in the most pessimistic case, warned Egan in the presentation for a board of supervisors’ committee hearing Wednesday.

Commercial property values would fall, and that would mean less revenue for the city from property taxes. In the short-term, the risk is lessened by long-term leases and the fact that under a California law known as Proposition 13, valuations for property tax purposes are often well below market prices. That cushions municipalities during downturns.

“However, if office demand is permanently reduced by remote work, eventually the city will see sizable reductions in property tax revenue from offices,” Egan said in the report.

Tech companies, the driver of the city’s economic growth and jobs, embraced flexible work policies in the wake of the pandemic but are now laying off thousands of people. Salesforce, the city’s biggest private employer, lets its employees decide where to work, while San Francisco-based Twitter has shed half its workforce under new owner Elon Musk. He’s ordered the remaining workers to return to the office.

The office sector represents 18% of the city’s property tax collections. San Francisco would have to set aside $150 million in required reserves by 2026 and then up to $200 million by 2028 if conditions don’t improve, according to the report. This fiscal year, the city expects to collect $2.38 billion in total property taxes.

San Francisco consistently ranks near the bottom of a list of 10 US metro areas for the share of workers back at their offices, data from security company Kastle Systems shows, with just about 40% on average.

Even the city’s optimistic forecast from empty offices expects a revenue loss, of about $100 million by 2028. Its base case pegs the loss at $128 million. Egan cautioned that there’s an “unusual level of uncertainty” in the forecast, but that it was “prudent to assume a less-than-normal level of office demand” over the next five years.

EUROPE

France: Property Tax: After Paris, Other Cities Do Not Rule Out An Increase

Are we on the eve of a property tax spike? The announcement, by Anne Hidalgo, mayor of Paris, on November 7, of an increase of almost 50% in local tax in the capital, which will go from 13.5% to 20.5% in 2023, has caused a sensation, and animated the municipal council of the capital, these last days. Mme Hidalgo had previously promised not to raise taxes.

Is this decision isolated or will other cities follow? In fact, this tax paid by the owners of real estate and allocated to the municipalities, has already increased significantly in 2022.

The first part of the increase (based on inflation) corresponds to an automatic revaluation of 3.4%, i.e. the “biggest revaluation since 1989”, assured the National Union of Property Owners (UNPI), in mid-October. The second part (local authorities can modify this rate) “jumped: + 1.3% in 2022”, again according to the UNPI. A few cases have caught the attention, such as Poissy (+ 23.9%), Mantes-la-Jolie (+ 22.2%) or Martigues (+ 19%), Marseille (+ 16.3%) or Tours (+ 16%).

For 2023, inflation requires, the mechanical revaluation should be “from 6% to 7%, which would represent 3 billion euros”, specifies Floriane Boulay, director general of Intercommunalities of France (the association of a thousand groupings of municipalities). The final figure will be known in December.

As for the choice of mayors, if Paris has already made known its arbitration, it can wait until the adoption of municipal budgets in the spring. In Grenoble, the increase could be between 15% and 25%, the city has already leaked. But the investments linked to the ecological transition mean that “there is a chance, in fact, that it will continue to increase” believes M.me Boulay.

“The vastness of the mayors have not made a decision, because they are in the fog”, observes Antoine Homé. In particular, they are waiting to know whether the European Union will agree to regulate energy prices. “But if the fundamentals don’t change by spring continues the mayor of Wittenheim (Haut-Rhin), this may force mayors to act on taxation. »

Energy prices have become “completely crazy” gets carried away Mr. Homé, “It is a calamity that falls on the communities”. And there are other charges, such as the general increase in civil servants decided by the government, the interest rates which go up. So raising the property tax might seem inevitable to many mayors.

Greece: ENFIA recalculations possible

Several municipalities across Greece are expected to demand corrections to the property zone rates implemented in January 2022, which led to large hikes in the Single Property Tax (ENFIA) in those areas.

The first objections are expected to be filed in the electronic system of the Finance Ministry from island regions, such as Astypalaia, Kos and Kefalonia, where zone prices almost doubled, but also from municipalities such as Kassandra in Halkidiki, Hersonissos on Crete, and Nafplio.

It is extremely likely that corrections will also be requested from municipalities of Attica where the zone prices also increased significantly but the readjustment did not lead to an increase in the ENFIA. Significant increases were recorded in Dafni, Kamatero, Moschato and Nea Peramos. Of course, in these areas the zone prices were very low and it is unlikely the competent committee of the ministry will accept these objections.

Kathimerini understands that the process of determining the rates will be repeated for any objections that are accepted. This means that the resulting new rates will be retroactive and the ENFIA paid will be set off against the taxpayers’ tax liabilities or next year’s ENFIA. Those who paid a higher property transfer tax will receive the relevant refund in their account.

In the draft law that is under public consultation municipalities are given the opportunity to submit objections. The bill emphasizes that “it is a fact that when determining the starting prices of the areas included in the objective determination system, it was found that there were areas in the country for which the opinion of the municipal councils was not expressed, in accordance with the written provisions.”

Objections are filed electronically and must be accompanied by any factual evidence. After examining the objections, the commission will recommend to the finance minister the zones where there is a strong possibility that the determination of the starting prices will need to be repeated.

The draft law also includes provisions leading to a new freeze on real estate value-added tax and on the capital gains tax, while the tax deduction for real estate renovations is extended for two more years.

Ireland: Farmers urged to check whether land falls within new tax zones

The draft RZLT maps published by local authorities allow landowners, including farmers, to see if their land is within the scope of the tax.

Landowners near built-up areas have been advised to check new maps published by all 31 local authorities, to see if their land comes within the scope of the new Residential Zoned Land Tax (RZLT).

The RZLT is designed to prompt residential development by landowners, including farmers, of land that is zoned for residential or mixed-use (including residential), and that is serviced.

“Given the housing needs that we have, where land is zoned for new housing, we want to build on it,” said Finance Minister Paschal Donohoe.

Farmland that is zoned for residential use, but which is not currently serviced, is not within the scope of the tax.

In general, land is considered to be serviced where it has sufficient access to the infrastructure required for residential development. This includes roads, paths, lighting and access to water supply and services, including sewers and drainage.

RZLT will be at 3% per year of the market value of the land. It will be due and payable from 2024 onwards in respect of land which fell within the scope of the tax on or before January 1, 2022. Where land is zoned or serviced after January 1, 2022, the tax will be first due in the third year after the year in which it is zoned or serviced.

The draft RZLT maps published by local authorities allow landowners, including farmers, to see if their land is within the scope of the tax.

If it is, and a landowner believes it should not be, there are two separate courses of action open.

The landowner can make a submission to the local authority by January 1, 2023, seeking to have their land removed from the map. The local authority responds with a written determination. If landowners disagree with the determination, they can appeal to An Bord Pleanála.

Or landowners can request to the local authority to have their land rezoned.

Supplemental and final maps will be published in 2023. Local authorities will update these maps annually from 2025 onwards for changes in the zoning and servicing status of land.

Residential property liable for Local Property Tax is exempt from RZLT. However, if your garden or yard is greater than 0.4047 hectares (one acre), you must register for RZLT (from late 2023 onwards). No RZLT is payable by owners of these properties.

You may have to pay the tax if you own a dwelling that appears on the local authorities’ Residential Zoned Land Tax maps, that is not subject to the LPT.

It is proposed in the Finance Bill 2022 to exempt land that is within the scope of the RZLT, but is subject to contractual arrangements that preclude the landowner from developing it. For example, where a farmer leased land prior to January 1, 2022, and the requisite conditions are met, the farmer may be able to claim an exemption from the tax for the period of the lease.

Draft RZLT maps can be found at gov.ie/rzlt or on the websites of each local authority, and in their public offices.

Besides landowners, other interested parties may make submissions on the inclusion of land which they consider falls in the RZLT scope, but was not included.

RZLT will operate on a self-assessment basis, administered by the Revenue Commissioners, which recently published a webpage guide on RZLT.

Minister Donohoe has said he engaged with Agriculture Minister Charlie McConalogue on the RZLT, and Minister McConalogue raised the issue of land in smaller towns that could be owned by farmers and is zoned for residential use.

However, there is a process for landowners to ask for land to have non-residential status.

United Kingdom: Business Rates Announcements

The Chancellor of the Exchequer delivered his Autumn Statement on 17 November. On the same day, the VOA published the draft rating lists that are due to come into effect on 1 April 2023.

Documents published by HM Treasury following the Chancellor’s Speech contained the following main points of interest concerning NDR:

Online Sales Tax (OST) – Following consultation, the government has decided not to introduce an OST, an idea put forward by certain stakeholders in the context of Business Rates reform. The government’s decision reflects concerns raised about an OST’s complexity and the risk of creating unintended distortion or unfair outcomes between different business models. A response to the OST consultation will be published shortly.

Business Rates – Overall Package – From 1 April 2023, business rate bills in England will be updated to reflect changes in property values since the last revaluation in 2017. A package of targeted support worth £13.6 billion over the next 5 years will support businesses as they transition to their new bills, protect businesses from the full impact of inflation, and support our high streets. English Local Authorities will be fully compensated for the loss of income as a result of these business rates measures and will receive new burdens funding for administrative and IT costs.

Business Rates – Multiplier Freeze – The business rates multipliers will be frozen in 2023-24 at 49.9 pence and 51.2 pence, preventing them from increasing to 52.9 pence and 54.2 pence. This is a tax cut worth £9.3 billion over the next five years. This will support all ratepayers, large and small, and mean bills are 6% lower than without the freeze, before any reliefs are applied.

Business Rates – Transitional Relief Scheme – Upwards Transitional Relief will support properties by capping bill increases caused by changes in rateable values at the 2023 revaluation. This £1.6 billion of support will be funded by the Exchequer rather than by limiting bill decreases, as at previous revaluations. The ‘upward caps’ will be 5%, 15% and 30%, respectively, for small, medium, and large properties in 2023-24, and will be applied before any other reliefs or supplements. This delivers significant reform to the business rates system and responds to a key stakeholder ask. The 300,000 properties with falls in rateable values will see the full benefit of that reduction in their new business rates bill from April 2023. Over the life of the 3-year list the scheme will support around 700,000 ratepayers.

Business Rates – Retail, Hospitality and Leisure Relief – Support for eligible retail, hospitality, and leisure businesses is being extended and increased from 50% to 75% business rates relief up to £110,000 per business in 2023-24. Around 230,000 RHL properties will be eligible to receive this increased support worth £2.1 billion.

Business Rates – Supporting Small Business Scheme (SSBS) – Bill increases for the smallest businesses losing eligibility or seeing reductions in SBRR or Rural Rate Relief (RRR) will be capped at £600 per year from 1 April 2023. This is support worth over £500 million over the next 3 years and will protect over 80,000 small businesses who are losing some or all eligibility for relief. This means no small business losing eligibility for SBRR or RRR will see a bill increase of more than £50 per month in 2023-24.

Business Rates – Improvement Relief – At Autumn Budget 2021 the government announced a new improvement relief to ensure ratepayers do not see an increase in their rates for 12 months as a result of making qualifying improvements to a property they occupy. This will now be introduced from April 2024. This relief will be available until 2028, at which point the government will review the measure.

In a separate document, the government published the following table concerning transition:

Upwards Caps                                                                          2023/24             2024/25*            2025/26*

Small (RV up to £20k or £28k in London)                               5%                         10%                      25%

Medium (RV between £20k to £100k)                                    15%                      25%                      40%

Large (RV greater than £100k)                                                  30%                      40%                      55%

*Year 2 and 3 caps are before inflation

United Kingdom: Business rates in Wales will be frozen for the 2023-24 financial year says Welsh Government

Business rates in Wales will be frozen for the 2023-24 financial year, the Welsh Government will announce in its upcoming draft Budget. The decision is part of a package of governmental support worth more than £460m over the next two financial years to help with the effects of rising costs.

All businesses in Wales will benefit from the new rates support which includes freezing the non-domestic rates multiplier (currently 0.53 which is times rateable values) for 2023-24, at a cost of more than £200m over the next two years, ensuring that there is no inflationary increase in the amount of rates businesses and other ratepayers are paying.

Earlier this month, some 15 business representative groups and industry bodies, including CBI Wales, FSB Wales and the Wales Tourism Alliance, wrote to Finance Minister Rebecca Evans urging her to match England on business rates.

The support package also includes a further £113m over the next two years to provide transitional relief for all ratepayers whose bills increase by more than £300 following the UK-wide revaluation exercise, which takes effect on 1 April 2023.

While another £140m will support businesses in the retail, leisure and hospitality sectors. Eligible ratepayers will receive 75% non-domestic rates relief for 2023‑24, a rise from the 50% relief provided in 2022-23.

The Welsh Government said the package will provide a “boost to businesses across Wales which are struggling to cope with the impacts of high inflation and surging energy costs”.

The package will operate in addition to permanent relief schemes from the Welsh Government which are already providing £240m of relief to ratepayers across Wales this year.

Minister for Finance and Local Government, Rebecca Evans said: “We know that businesses are feeling the pressure of spiralling energy costs and rising inflation, while they are still recovering from the impacts of the pandemic.

“We want businesses to know now that we will continue to apply substantial discounts to their rates bills, and that this package of support will help businesses to thrive in the hard times we know they are facing.”

Minister for Economy Vaughan Gething said: “We want Wales to be an attractive place to live, study, work and invest, with businesses supported to deliver a stronger, fairer, greener Welsh economy.

“The additional support we have announced today will help us provide more certainty for businesses despite rising costs. I remain fully committed to moving the economy forward by supporting businesses to grow and thrive.”

Authors:

• Paul Sanderson, President | psanderson[at]ipti.org
• Jerry Grad, Chief Executive Officer | jgrad[at]ipti.org
• Carlos Resendes, Director | cresendes[at]ipti.org

Compliments of the International Property Tax Institute (IPTI) – a member of the EACCNY.