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).
Tricky Issues Impact Shopping Center Property Taxes
Property tax assessments of shopping centers and other retail real estate may not capture the full extent of value losses those properties sustained in 2020. To avoid paying more than their fair share of taxes, it is important for retail owners to examine how market conditions affect each aspect of the tax assessor’s approach to valuing their real estate.
In most jurisdictions, assessors value real estate for property taxes as of January 1 of each calendar year. Most appraisal districts assess retail properties at market value derived from the income approach, as would an investor looking to acquire one of these properties. Market value in this case is the probable price at which a property would sell in a competitive and open market, where the buyer and seller are motivated, well informed and acting in their own best interest, and with reasonable exposure time and typical financing.
In a stable environment, most appraisal districts’ assessors capitalize the prior year’s net operating income to reach a market value. Since the 2020 retail property market was less than stable, a modified approach could be to start with a stabilized value, then calculate the rent loss and leasing costs required to stabilize the asset.
The pandemic and stay-at-home orders affected retail property subtypes in varying ways, and performance often varied from property to property within a subtype through most of 2020 and into 2021. Multitenant strip centers saw large occupancy declines as a 20% drop in customer traffic nationwide left many tenants unable to pay rent.
Malls were among the hardest hit properties. Foot traffic in some malls dropped nearly to zero and mall anchors including JC Penney, Macy’s, and Dillard’s began liquidating many locations. Prior to the pandemic, enclosed shopping malls and brick-and-mortar stores were already struggling to maintain customer traffic related to massive increases in e-commerce. The effects of changing consumer behavior, in addition to mandated stay-at-home orders, accelerated this shift to e-commerce, and many mall-based tenants closed their doors completely.
Big box retailers arguably fared better than other store categories, as those designated as essential businesses remained open throughout 2020. Because of this, in many cases sales volume at big box retailers (especially those with grocery components) outpaced sales at other retail property types. Store sales do not equal market value for the purposes of property tax assessments, which underscores the need in 2021 for property owners to be more aware than ever of tax assessors’ valuation standards.
While appraisal districts may emphasize increased sales volume in big box retail, property owners need to remember that business performance does not equal real estate value. Store sales may be up, but an increasing percentage of these sales come from online orders. Property owners must prove that, despite increased sales volume overall, big box property values are generally flat or decreasing. Ecommerce has weighed on real estate values for the past few years and has forced big box retailers to re-evaluate their approach to storefronts.
The pandemic forced property owners to make significant rent concessions to keep tenants in place throughout 2020, when those occupiers were able to do so.
These rent concessions should reduce effective rents in the retail market, with variation by location and submarket. Additionally, with a large portion of tenants unable to pay rent, the retail market saw massive collection losses and climbing vacancy rates.
If a property is operating below average market occupancy, the assessor or appraiser must include a discount for lost rent or an adjustment for the cost of lease-up. Together with rent concessions, increased vacancies reduce the effective gross income these properties can produce.
Since most multi-tenant retail leases are structured on a triple net basis that requires tenants to pay for taxes, utilities, common area maintenance, administrative expenses and insurance, property owners are on the hook for 2020 expenses that they would normally pass through to tenants who are no longer in place. This could expose property owners to increased levels of risk.
The pandemic also compelled property owners to reallocate capital expenditures to make buildings more resilient to virus transmission risks. As a result, other necessary capital expenditures may have been deferred, which could impact the bottom line and increase the difficulty of finding potential buyers for these properties.
After calculating net operating income, appraisal districts will then capitalize that income with a chosen capitalization rate to determine market value. The pandemic’s effect on cap rates is difficult to ascertain, however, and lenders have grown more cautious. The increased risk associated with retail properties today requires an upward adjustment in cap rates, with a correlating decrease in property market values.
Property tax is a significant expense to the property owner, with numerous issues and nuances to consider. Managing this cost may appear daunting but can be accomplished effectively with the correct understanding of the market conditions affecting the property. It is important to understand the subtleties of how assessors value the property, or to partner with an experienced advisor with that knowledge.
New York: NYC Office Market Will Take Years to Recover from Pandemic
More Than $850 Million in Property Taxes Lost in FY 2022
The COVID-19 pandemic wiped out years of growth in New York City’s office sector, erasing nearly $28.6 billion in market value and more than $850 million in property taxes in City Fiscal Year (FY) 2022. Timing its recovery is an open question, however, as employers continue to offer work-from-home options, according to a report released today by State Comptroller Thomas P. DiNapoli.
“Midtown and the Financial District are two of the largest business districts in the world. Demand for space led citywide office sector property values to more than double in the decade before the pandemic,” DiNapoli said. “When the pandemic hit, companies shifted office workers to remote work, rents fell, and vacancies rose. I am optimistic for the sector’s recovery but it’s short-term future remains uncertain as employers assess future use of the space. The city should closely monitor trends in the sector and consider the future impact on tax revenues.”
Questions over the configuration of space and a potential uptick in per-worker square footage may take years to settle. The continuation of the pandemic, firmer changes to commuting patterns, increasing subleases and vacancies, and the return of demand for residential space are likely to influence conversations over the best use of physical space in the coming months and years.
The full market value of New York City office buildings, estimated at $172 billion in FY 2021, fell 16.6% in the FY 2022 final assessment roll, the first decline in total office property market values since at least FY 2000, reflecting decreased demand brought on by the COVID-19 pandemic. The city had 463 million square feet of inventory as of the second quarter of 2021, accounting for 11% of all office space in the nation.
New York City’s office sector reached a total of 1.6 million jobs in 2019, the highest level on record. Office sector employment makes up about a third of all jobs in the city, compared to a quarter in the rest of the state and the nation. In 2019, the sector contributed $705 billion to the city’s gross product, accounting for 66% of the city’s output.
Most office sector workers in the city were well paid, with an average annual salary of $183,900 in 2020. Even when excluding high earners in the financial securities sector, the average salary was $145,290. This is higher than the citywide average ($110,190) and much higher than the average for non-office jobs ($62,730).
In FY 2021 (assessed before the pandemic began), office property values reached $172 billion and billable values (the market value on which property tax is levied) reached $71 billion. Both had more than doubled over the prior 10 years. Office market values made up about 13% of total market values.
In 2020, office employment fell 5.7% while total employment dropped 11.1%. Many office workers shifted to remote work, with just 5% on-site in April 2020.
DiNapoli’s report found that average asking rents showed little change in the early stages of the pandemic, but began to fall significantly in the fourth quarter of 2020. By the second quarter of 2021, asking rents were down 4.2% from the prior year and vacancy rates were at 18.3%, a level not seen in over 30 years. The large volume of vacant office space has revived conversation about the conversion of some of that space into residential housing.
The office sector began experiencing measurable changes in demand in the second quarter of 2020 when Manhattan new leasing fell to 2.5 million square feet, 75% below the level one year earlier. Renewal activity fared better at 7.2 million square feet, a decrease of 15% from 2019.
Reduced demand for office space contributed to a 5.2% decline in overall billable values in FY 2022, the first decline in more than 20 years. Some of the city’s most expensive office properties dropped significantly. For example, the market price of the World Trade Center complex dropped by 23.1%.
In FY 2021, the office sector provided an estimated $6.9 billion in direct revenue in property taxes, real estate transaction taxes, mortgage taxes and commercial rent taxes. Property taxes from the office sector raise more than any other property type subcomponent (e.g., single-family homes or multifamily rental buildings). Office sector property tax collections alone surpassed the entire budgets of the city’s Sanitation, Fire, Transportation, and Parks and Recreation departments, combined.
Commercial real estate such as office and retail buildings account for an outsized share of tax collections because they are assessed at a much higher rate than residential properties. In FY 2021, office buildings accounted for 12.6% of the market value of properties on the assessment roll, but more than a fourth (26.2%) of the billable taxable values at $71 billion.
The city collected $1 billion in transfer taxes and $816 million in mortgage taxes in FY 2021, the second year of declines as a result of pandemic impacts. DiNapoli estimates that $216 million of these taxes were generated by office properties, less than half of the $461 million generated in FY 2020.
Office employment has remained steadier than overall employment and is expected to continue to grow, which is likely to support future demand for space. Multiyear leases extending into 2023 and healthier balance sheets of property owners have also provided some short-term stability in the office real estate market.
The city’s tentative assessment roll for FY 2023, to be released in January 2022, will provide further insight on the potential duration and magnitude of the impact on city finances.
DiNapoli urged the city to monitor the overall employment and real estate markets, including differences in submarkets, to deliberate carefully over its choices to influence office employment and space, and to ensure that policy decisions will mitigate negative impacts on tax revenue and the economy.
Connecticut: Stamford’s mayor thinks the city’s property revaluation should be pushed back a year
Mayor David Martin is asking the state legislature to allow Stamford and other municipalities to be allowed to delay their mandatory property revaluations for a year, citing the impact of the COVID-19 pandemic on property values.
State law requires cities and towns to complete a revaluation of commercial and residential properties every five years. Stamford and dozens of other municipalities in Connecticut are up for revaluation in 2022. Stamford’s Oct. 1, 2022 grand list — a list of all of its taxable property — is supposed to be based on updated property values. Those values will then be used to calculate property taxes starting in 2023.
Because of the pandemic, “single-family residential and apartment markets across Fairfield County are substantially higher in value, while other property types, such as commercial retail, are depressed and weakened,” a release from Martin’s office noted. That disparity could lead to a 10 to 15 percent increase in residential property taxes in summer 2023, according to the release.
“I am concerned that our residential neighborhoods will be impacted with much higher property taxes because of a short-term increase in home prices,” Martin said in a statement Friday. “I believe by holding off the re-assessment for one year, we will see a leveling off of price fluctuations in the market and get a more accurate and fair assessment of property values until the next five-year re-assessment cycle.”
Stamford’s 2022 revaluation includes physical inspections of properties; that process is already underway. Under a contract costing about $900,000, employees of Municipal Valuations Services are knocking on doors and inspecting properties across the city. Physical inspections were last performed as part of Stamford’s 2012 revaluation. The city’s 2017 revaluation was only statistical.
“There are two types of revaluations: full-physical and statistical,” explained Greg Stackpole, Stamford’s tax assessor. “The difference between the two is a full-physical requires a visit to the real estate parcel to insure information on record is accurate before a fair market valuation is determined. Both types require a full analysis of market conditions for all property types, including sales, leases, income and expense data from commercial property owners; this is the statistical component to any revaluation.”
Martin wants the city to be able to postpone the statistical part, which is expected to cost almost $500,000 of the total, he said.
Indiana: Southlake Mall prevails in long-running property tax assessment dispute
Local government taxing districts that include Southlake Mall likely will have to pay millions of dollars in refunds to the mall’s owners after a long-running property tax assessment dispute was resolved by the Indiana Supreme Court on Wednesday in the mall’s favor.
The Indiana Supreme Court, in a 5-0 decision, ordered the valuation of the mall for property tax purposes restored to the 2010 assessment of approximately $110 million for the 2011, 2012, 2013 and 2014 tax years, undoing a 2014 reassessment that valued the mall at approximately $240 million.
The exact amount of the refunds to be paid by Lake County, Hobart, and the other taxing units due to the overassessment is not yet known.
But a former attorney for the Lake County Commissioners previously estimated the county alone may be on the hook to return as much as $12 million in property taxes paid by the mall during those years.
According to court records, mall owner Southlake Indiana LLC objected to the Ross Township assessor more than doubling the assessed value of the mall property at U.S. 30 and Mississippi Street that contains some 1.3 million square feet of retail space, a 12-screen AMC movie theater, and several restaurants.
The case eventually landed at the Indiana Board of Tax Review. Records show the board was unable to say whether the mall appraisal provided by the assessor or the valuation offered by the mall’s appraiser was correct.
To resolve the issue, the Board of Tax Review created its own valuation for the mall for the four tax years at issue that was closer to what the assessor said the mall was worth than what mall officials believed the property was worth. The appellate-level Indiana Tax Court affirmed the board’s valuation of the mall, except for two minor issues, in December.
The Supreme Court, however, said both the tax review board and the tax court overstepped their bounds by independently devising and affirming a value for the mall, according to the ruling written by Justice Geoffrey Slaughter, a Crown Point native.
Slaughter said Indiana statutes clearly require the tax board, when a challenged valuation is 5% greater than the previous valuation, to accept as correct either the assessor’s appraisal of a property or the property owner’s appraisal — otherwise the valuation must revert to the previous assessment.
He said there’s no statutory authority for the tax board to create its own assessment, as it did in this case, if it finds deficiencies in each of the provided appraisals. Likewise, the tax court should not have affirmed the board’s actions, Slaughter said.
“We apply the statute as written and do not second guess the Legislature’s decision to limit the state board’s flexibility when assessed values increase by more than the 5% percent threshold,” Slaughter said. “By failing to apply the reversionary clause, the tax court erred as a matter of law.”
Brian Cusimano, attorney for the Lake County assessor, said he’s very disappointed in the opinion issued by the state’s high court. “The assessor provided substantial evidence of the value of the property — an appraisal and a sale — which we believed supported the assessments issued by the Ross Township assessor,” Cusimano said.
He pointed out the court-ordered reversion to the 2010 valuation reduces the value of the property to below even what the mall’s appraiser calculated the mall was worth for the 2013 and 2014 tax years. “In the coming months, we hope the Indiana Legislature will revisit the provisions of the statute so it is no longer applied in this way,” Cusimano said.
Lead mall attorney David Suess said he’s pleased Southlake finally will get a proper tax assessment based on Indiana law. “The court’s ruling vindicates the taxpayer protections wisely enacted by the General Assembly to prevent assessors from doing exactly what the assessor did in this case: substantially increasing Southlake’s assessment without being able to prove that the increase was correct,” Suess said.
“Our client looks forward to working with Lake County to promptly resolve all remaining assessment disputes.”
Records show Southlake Mall recently was foreclosed on in Israel after its former owner, Starwood, refinanced its mall portfolio in 2018 and then defaulted last year due to the COVID-19 pandemic.
California-based Pacific Retail Capital Partners and New York City-based Golden East Investors were installed as trustees running the mall, the second largest in Indiana and the anchor of Northwest Indiana’s biggest commercial trade district. A valuation of the mall provided to Starwood in 2018 by Chicago-based NPV Advisors pegged its fair value at $302 million as of Sept. 30, 2017.
Louisiana: Property Tax Assessments and Losses Resulting from Hurricane Ida
The damage caused to property by Hurricane Ida in Louisiana was significant. Many businesses will or already have made claims with their insurers for property damage, loss of equipment, inventory, and business interruption. One area of loss that is sometimes overlooked is the loss in value of the property as it relates to the 2021 property taxes due to Hurricane Ida. After Hurricanes Katrina and Rita, the Louisiana legislature enacted La. R.S. 47:1978.1, which provides for the assessment of land and property damaged or destroyed during a disaster or emergency declared by the Governor.
On September 12, 2021, Governor John Bell Edwards declared a State of Emergency for the State of Louisiana due to Tropical Storm Ida. The provisions contained in La. R.S. 47:1978.1 are applicable as a result of the devastating impact of Hurricane Ida throughout Louisiana. The statute provides:
If lands or property, including buildings, structures, or personal property, are damaged, destroyed, non-operational, or uninhabitable due to an emergency declared by the governor or to a disaster or fire, the assessor or assessors within such parish shall assess such lands or property for the year in which damage has occurred at the percentage of fair market value provided in the Constitution of Louisiana by taking into consideration all the damages to the lands or other property, including obsolescence, and the depreciation of the value of such land or other property caused by the disaster, fire, or emergency described in this Section. Notwithstanding other provisions of law to the contrary, the assessor shall make these assessments whether the time fixed by law for filing assessment rolls has elapsed or not.
As of September 24, 2021, the Orleans Parish Assessor has announced a five percent (5%) reduction on all residential property taxes and is opening its roles beginning September 23, 2021 through October 7, 2021 for property owners to request additional relief due to damage from Hurricane Ida.
The Jefferson Parish Assessor’s Office has announced it is opening its tax rolls from September 29, 2021 through October 13, 2021. Property owners may review their assessments and apply for additional relief during this time. Plaquemines Parish has announced it is opening its tax rolls from September 28, 2021 through October 13, 2021 and other parishes have announced similar dates or are still evaluating the times in which they will open their rolls.
Property owners should document all damage to their property, including photographs, receipts, and any other information showing the claimed damage to include in their application with the assessor for additional relief.
You can visit the assessor’s website for the parish your property is located in for more information on how to submit your application for relief. If the assessor determines that you did not sustain a loss, or if the assessor determines the loss is less than you believe, you may appeal the assessor’s decision to the Louisiana Tax Commission.
New Jersey: Margate gets a second, one-year reprieve to complete citywide revaluation
The Atlantic County Board of Taxation has given the city another year to begin a full revaluation of all properties. According to the board, changes in the real estate market caused by the pandemic, is the reason for the extension of time to get the process started.
The board, which reviews the uniformity and accuracy of assessments in each Atlantic County community, first ordered the city to perform a revaluation of properties in October 2020. The board said that the ratio of assessed valuation to true value in Margate had a coefficient of deviation of 14.6% for residential properties and 20.29% for commercial properties. The coefficient of deviation percentage demonstrates that Margate’s assessments are out-of-whack and need to be brought up to 100% of true value.
That order required Margate to begin its revaluation by Sept. 30, 2022 and become effective for the 2023 tax year. The order also required that the city’s tax maps be up to date, then-Administrator Margaret M. Schott said at the time. The last time the city conducted a full revaluation was 15 years ago, City Administrator Richard Deaney said at the Sept. 2 Board of Commissioners meeting.
On Dec. 15, 2020, the city’s tax attorney, Hank N. Rovillard, requested an extension to allow the city time to update its tax maps, which were last updated in 2003. In his letter, Rovillard cited the volatility in the real estate market, and said the city’s coefficient of deviation is below the 15% threshold for ordering a revaluation.
The city’s request for a one-year extension was granted, with Schott indicating the new effective tax year would be 2024. Although the city notified the county in February that it planned to comply with the new effective date, in August, Margate tax assessor James W. Manghan requested another extension, stating that “the uncertainty of circumstances beyond the control of the city,” prompted the city to request another year to start the process.
Manghan cited “extensive mapping revisions” required by the NJ State Tax Map Unit, required software updates, budgetary costs, and the unavailability of state certified revaluation contractors to conduct inspections amid the COVID-19 pandemic as some of the reasons for the delay in starting the process.
Manghan estimated it would cost the city between $750,000 and $1 million to complete the revaluation.
Additionally, Manghan said, “real estate volatility within the COVID economy” could result in “historically high valuations” that would drop soon afterward, causing a need for further reassessment and result in a high number of tax appeals.
On Aug. 27, county Tax Administrator Keith Szendrey granted the city another year to complete the revaluation. The new order requires the city to complete the revaluation by Sept. 30, 2024 to be effective for the 2025 tax year.
A revaluation requires property owners to cooperate with inspections by state approved contractors licensed to do the new assessments.
County officials have said in the past that in essence, a third of the property owners would see their taxes increase, a third would see their taxes reduced and a third would likely stay the same.
Greece: ‘Luxury coefficient’ in ENFIA
The backbone of the new Single Property Tax (ENFIA), which will be activated next year, will be a single set of brackets and rates that will determine the dues owners will pay for each square meter of real estate in their ownership.
These rates will associate the amount of the tax with the zone rates – whereby the higher the zone rates, the larger the tax dues per sq.m. will be – and after the prime minister’s announcement about the absorption of the supplementary property tax by ENFIA, the government will examine the creation of a new “luxury coefficient” that will mostly burden high-value assets.
After the abolition of the supplementary tax, currently imposed on owners of assets worth at least 250,000 euros in total, there will be a significant benefit for taxpayers given that this will slash dues by some €360 million in total.
To keep large ownerships paying extra, as is fair, the Finance Ministry may impose additional tax on properties of high value (e.g., worth more than €250,000-300,000 per property). That will be the major change to emerge next year, as instead of burdening those with a sum of properties valued at €250,000 at least, the extra dues will concern those owning properties that separately have a high value.
Given that as of October 1 parents’ gifts to their children worth up to €800,000 will be tax-free, there was the risk of them splitting their assets across the family so that none would exceed €250,000, meaning they would be exempt from the supplementary tax.
Furthermore, the proposal for a luxury coefficient is aimed at preventing the new ENFIA from favoring large ownerships, so in practice most of those currently paying the supplementary tax will face a higher ENFIA as of 2022.
The idea of a single set of brackets and rates for calculation per asset had been the original plan for ENFIA in 2013. However, under the pressure then of deputies from the regions, the supplementary tax was introduced to avoid high taxes on land used for agricultural purposes.
Ireland: Google searches for cut on Dublin rates
It has been criticised for using loopholes such as the “double Irish” to avoid paying tax in Ireland. Now it has emerged that Google is unhappy about the commercial rates it pays at one of its Dublin offices.
The tech giant has won an appeal at the Valuation Tribunal, an independent state body that decides on rates disputes, over an “inequitable” €363,140-a-year bill for the Velasco building in Dublin’s docklands. Google, whose international market value is more than €850 billion, leases the building from Irish Life.
It has succeeded in reducing the annual rates bill on the six-storey office block to €346,390, down by €16,750 a year. The decision was made by the tribunal in June and published last week. Google had claimed the original bill was “excessive and inequitable” and argued that it should be reduced to €309,540.
It first complained over the rates in 2018 after the Commissioner of Valuation gave the office a net annual value (NAV) of €1,355,000, a figure used to calculate a building’s commercial rates. All councils use a multiplier to assess rates, and Dublin city council multiplies each building’s NAV by 0.268.
Google made representations to the commissioner during 2018 but these were rejected. The company requested a formal appeal, which was held remotely in September 2020. It hired Martin O’Donnell, CBRE’s head of rating, to make its case. At the hearing he claimed the basement of the building should have been valued less than the rest, as it was not in office use.
O’Donnell cited several examples where this was also the case, including another Google building at Grand Canal Plaza and a building in the heart of Georgian Dublin at 1 Warrington Place.
In response the commissioner of valuation cited several broadly similar buildings to support its calculation, including the Montevetro building on Barrow Street in Dublin, owned by Google. He said the Velasco building was a “high quality, fourth generation” office block with a building energy rating of A3. It had luxuries such as air-cooled chillers which generate drinking water for the open-plan offices and reception area. The commissioner conceded that part of the basement was used as stores rather than offices.
The Valuation Tribunal adjusted the building’s rates to reflect the use of its basement as a store but was “not convinced” there was a case for a lower overall rate. It settled on annual rates of €346,390, less than the €363,140 Google was originally charged but more than the €309,540 it said was fair.
Last year it emerged that Google had used the “double Irish” method in 2019 to move €75 billion in profits through an Irish subsidiary that was domiciled for tax purposes in Bermuda, where the standard rate of tax is 0 per cent. The tax loophole has since been closed.
The tech giant, which declined to comment on the rates appeal this weekend, owns several office buildings in Dublin and leases others. In total it has more than 90,000 sq m of office space in the capital, mostly in the docklands. These include offices in Gordon House, the Montevetro, the Watermarque, the Bolands Mill campus, the Treasury Building, the Grand Mill Quay building and One Grand Canal Quay. It also has an office in EastPoint Business Park and two in Sandyford.
United Kingdom: Even more shops will close without business rates reform, Sunak warned
More than four in five big retailers say they will be forced to close stores without reforms to the business rates system as the Treasury prepares to publish its long-anticipated review.
The British Retail Consortium found that 83pc of major retailers said they were likely or certain to close stores unless the upcoming review leads to lower payments. Its survey also found that the burden from the rates was a factor in two thirds of store closures over the past year.
The trade body is calling on ministers to cut business rates to the same level they stood at in 1990 when they were introduced, as well as an overhaul of how properties are valued to ensure “accurate valuations”. Business rates, charged as a percentage of the rateable value of a property, are disproportionately borne by retailers due to the size of their stores. Critics say they disadvantage the high street against online retailers such as Amazon and hold back investment. One in seven shops in the UK are closed.
The consortium said one in four stores pay more in business rates than in rent, despite the tax being designed as a proportion – known as a multiplier – of a property’s value. The rates are based on valuations from the Government’s Valuation Office Agency, rather than rents themselves, which critics say are often inaccurate.
It is calling for a cut in the multiplier, from 51.2p in the pound to 35p. It is also demanding changes to the system of “transitional relief”, where declines in rates based on property revaluations are phased in. The BRC report also recommends relief for improvements to buildings that might increase their value, saying they discourage investment, and for an overhaul of the Valuation Office Agency.
Rishi Sunak, the Chancellor, announced a review of business rates in March 2020, saying he wanted to reduce the overall burden on businesses. The Treasury is due to issue a final review in the coming weeks. Retailers were disappointed after an interim report in March failed to outline whether rates would fall. Helen Dickinson, the BRC’s chief executive, said: “It is essential that action is taken, or else it will be our local communities and high streets which suffer the consequences.”
United Kingdom: Labour to scrap business rates if elected, says shadow chancellor
Labour will scrap business rates and undertake the “biggest overhaul of business taxation in a generation,” the Labour shadow chancellor said at her speech at the party conference, saying the current system punishes entrepreneurs and business investment.
Rachel Reeves also announced that the party will undertake a major review of existing tax reliefs, suggesting it would target reliefs on wealth such as income from buy-to-let properties. She said the reliefs “create extra layers of complexity to navigate, and added together they cost more than our entire NHS budget. “We will look at every single tax break. If it doesn’t deliver for the taxpayer or for the economy then we will scrap it.”
The shadow chancellor said a Labour government would freeze business rates and eventually replace them with a new, as yet undefined system that she said would reward investment, with a particular focus on businesses investing in decarbonisation and green technology.
She said a new system would involve more frequent revaluations and ensure instant reductions in bills when property values fall. Businesses would be incentivised to move into empty premises to revive high streets and neighbourhoods.
In her speech at the Labour conference, Reeves said high street businesses have faced “huge adversity in the past year … They are struggling right now, with a cliff edge in rates relief coming up in March.
“The next Labour government will scrap business rates. We will carry out the biggest overhaul of business taxation in a generation, so our businesses can lead the pack, not watch opportunities go elsewhere.”
Labour said the policy would mean a freeze in business rates until the next revaluation, benefiting sectors like retail and hospitality, and increase the threshold for small business rates relief that would give such companies a discount, before undertaking more fundamental reform.
She suggested the government should be looking at raising money from private equity companies and big corporations, instead of its national insurance hike, council tax rises and universal credit cut.
She laid into the government’s “utter complacency” about the UK’s recovery from the pandemic and the “working people who are footing the bill for this government’s failures”.
Reeves said she wanted to challenge the Tories on the grounds of economic competence, saying she knew “we would win”, and praised the US president, Joe Biden, for understanding that “wealth doesn’t just trickle down from the top but is created from the bottom up and from the middle”.
Mike Cherry, the chair of the Federation of Small Businesses, said the principle would be a hugely positive step for many high street businesses. “The gauntlet has been thrown down by the opposition, and we hope government ministers are listening. This is what a pro-small business tax policy looks like,” he said.
“Business rates is a regressive tax which hits firms before they’ve made a pound in turnover, let alone profit, whilst disincentivising sustainable investment. This proposal marks a welcome call to action that would take more small businesses out of the regressive rates system and rightly looks ahead to more fundamental reform.”
Tony Danker, CBI director-general, added: “Change to this outdated system is chronically overdue.
“The Labour Party should be applauded for grasping the nettle and putting forward a pro-growth, pro-investment package of reforms that will reflect our green ambitions, spur the economic recovery, and help level up our regions.”
- 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 – a member of the EACCNY.