The EACC, in partnership with the International Property Tax Institute (IPTI), wants to keep members up to date with the latest developments in property taxes both in the USA and Europe. This month, the brief reports below cover the United Kingdom, Greece, and Portugal.
IPTI has put together a selection of reports from recent articles contained in IPTI Xtracts (see website www.ipti.org for more information).
United Kingdom: consultation paper on business rates
In the UK there is uproar about an issue that has appeared in a recent government consultation paper on the issue of valuations for business rates (the property tax relating to non-residential properties).
The consultation paper states: “The majority of properties for rating purposes are valued using the rentals approach which generally involves the VOA analysing rental evidence for similar properties to arrive at a unit rate for the property being valued. As a result, assessing rateable values is inevitably a matter of professional judgement. The Government has been considering how best to ensure that decisions of the VTE recognise this and that their resources are focused on cases where there is a real issue at stake. In turn this should help appellants form a view as to the likely success of appeals. The Government therefore proposes that the VTE, in considering an appeal, should order a change in the rateable value only where their view is that the valuation is outside the bounds of reasonable professional judgement. In cases where the VTE consider the extant valuation is within the bounds of reasonable professional judgement, no change will be made to the valuation.”
Many professional commentators are taking the view that this means no reduction will be made in a property tax valuation unless the VOA’s valuation is more than X% wrong. Of course, the X in X% is likely to vary depending on the type of property concerned, but could be quite high in cases of unusual or specialised properties and the fear is that ratepayers may be required to pay rates on a valuation which is shown to be significantly wrong, but they will be unable to get it put right. It will be interesting to see if this controversial proposal survives the consultation process.
United Kingdom: More than 10 per cent of high street stores across the UK now lie vacant
National town centre vacancy rates rose to 10.1 percent in the third quarter of this year to July, according to new research from the British Retail Consortium (BRC) and consumer counting service Springboard. This is the first time vacancy levels have passed 10 percent since April 2015 and marks an increase of five basis points on the previous quarter.
The figures provide an unwelcome reminder of the heavy burden of property costs and business rates on the retail sector, Helen Dickinson OBE, chief executive of the BRC, said.
“The retail industry is undergoing a transformation driven by technology which is changing the way we shop. Shoppers are demanding more a personalised service and a seamless interaction between physical and digital. With UK property taxes higher than anywhere else in the world they act as a disincentive to operate physical space.
“Today’s figures should serve as a wake-up call. If property costs in general, and business rates in particular, continue ever upwards, we should all be concerned about the impact on our local communities up and down the country.”
However, given the political uncertainty in the lead up to the EU referendum – and its resultant impact on the commercial property sector which saw the suspension of several property funds – the next quarter is likely to prove more telling of the fate of Britain’s high street.
“The April to June quarter can prove irregular as post-Christmas pop ups and temporary stores disappear from the high street and the EU referendum and political and economic uncertainty of the last quarter will have deterred some retailers from taking on leases”, said Diane Wehrle, marketing and insights director at Springboard. “The next quarter’s figures will be the ones to watch to get a clear picture on any continued increase in vacancy rates, which would be concerning for town centres across the UK.” Footfall in July fell 0.4 per cent year-on-year across the UK, with most losses occurring in retail parks and shopping centres.
United Kingdom: STA lays battle lines over business rates revaluation
The Solar Trade Association (STA) has issued a call to arms for the UK solar industry to challenge a proposed increase in business rates which could dramatically impact on commercial rooftop PV.
Last month the STA revealed that, having discussed the matter with the Valuation Office Agency (VOA), it had become apparent that rateable values attached to solar PV installations could rise to as much as £55 per kW for a 4-150kW system, roughly eight times the current rate. Such an increase would stand to have a significant impact on the economics of commercial rooftop installations and, as a result, the STA has called for action.
But having exhausted discussions with the VOA, the STA is now calling on members of the industry to lobby local MPs and other politicians in an attempt to have the increase stopped through a statutory instrument, which could be laid in parliament to prevent such an increase. Leonie Greene, head of external affairs at the STA, said there was no need for the industry to panic, but it needed to act quickly.
“We are pretty confident that ministers will be keen to scotch the proposed shock business rate rise when the problem is appreciated. The extra challenge at the moment is communicating with a government and an energy department in a state of transition but we are already talking to officials and advisers across lots of departments.
“However, seeing this threat off quickly depends on swift action by the industry. We strongly urge every solar company to contact their MP as soon as possible. Companies should ask their MP to contact the BEIS secretary of state Greg Clark setting out how serious a threat the proposals present to the non-domestic solar industry.
“Rather than tax bombshells, it is clear that the industry needs and wants to see a positive tax regime to reward responsible companies. We very much hope that the new integrated department will tune a fresh ear to the unparalleled growth, jobs and innovation potential solar offers,” she said. The STA has released a policy briefing document to inform members of the industry of the proposed changes and how they can contact their local MP. People are also being asked to request that their MPs notify Clark, financial secretary Jane Ellison and local government minister Marcus Jones of the issue.
There is however some urgency concerning the matter, with business rate notices due to be sent at the end of September.
The revaluation comes at a time when the commercial rooftop market has emerged as a market of significant importance for the domestic solar industry given the severely reduced run rate seen within the residential market. But while the change is seen as potentially damaging and other technologies such as CHP are exempt from business rates, it has not been regarded within the industry as a purposeful policy attack, as other adjustments have been.
When contacted by SPP for comment on the industry’s concerns, a spokesperson for the VOA, said: “We are in continual discussions with industry bodies on how we assess different types of non-domestic property. We will be publishing draft rateable values on 30 September 2016.”
United Kingdom: London Firms Concerned Over Business Rates Revaluation
44 percent of London businesses are worried about the forthcoming revaluation of UK business rates (property tax), according to a new survey by the London Chamber of Commerce and Industry (LCCI).
Business rates are typically revalued every five years, when the Government adjusts the value of business rates to reflect changes in the property market. The new rates are due to be announced in October and will enter into force from April 2017. Furthermore, under changes announced at the 2016 Budget, the administration of business rates will be simplified, and from 2020 the uprating mechanism will be switched from the Retail Price Index to the Consumer Price Index. The Greater London Authority will move towards full retention of its business rates from April 2017.
LCCI said that among companies employing 10 or more people, 55 percent of those surveyed were concerned about the upcoming adjustments. Half of those questioned said they did not know whether they could benefit from Business Rates Supplements. In addition, 42 percent of respondents said that they were unsure whether devolving greater control over business rates to London local government would have a positive impact on their business. 40 percent did not know whether the business rates they pay are “fair.”
Colin Stanbridge, LCCI Chief Executive, said: “The results suggest that there isn’t enough clarity around the subject. While LCCI welcomes the devolution of business rates in principle and recognizes the role that businesses can play to fund infrastructure that benefits their locality, the Treasury needs to outline how reforms will work in London given the Business Rates Supplement that is already in place.”
“The Government must ensure that implementation is done transparently and in consultation with the capital’s local businesses who are stumping up, or we run a very real risk of businesses shutting up shop and moving out of London.”
Greece: ENFIA property tax to burden 7.3 million Greeks starting next week
7.3 million property owners in Greece will be called upon to pay a total of 600 million Euros for each month from September through to January 2017, with average per owner estimated at 458 Euros. Tax authorities are expected to issue the special property tax (ENFIA) clearance slip shortly, while the exact amount corresponding to each taxpayer will be posted on Taxisnet, the official site of the Tax Office, after that. At least 5 million property owners will pay the same amount as last year, while citizens with farm land will be burdened with a further 250 million Euros. According to the Finance Ministry’s initial assessment, the aggregate of the payable amount from the property tax will amount to 3,344 billion, slightly over the 3,342 billion for 2015.
Some last minute changes saw the government back down its plans to include farm plots in calculating the supplementary tax, a decision that benefited small agricultural plot owners and pensioners who had by and large inherited lands from their parents. Based on the standing law those who will be hit hardest from the property tax provisions are owners of plots and detached houses, who despite the reductions in objective value of properties will pay more than last year. Owners of properties that were not rented out will also be adversely affected, as they will not be eligible for a 20% discount that was implemented in 2014 and 2015.
Greece: Deadline Extension Moved to November for Greek’s Property Declarations
The Finance Minister has extended the deadline for making amendments to annual declaration forms for property owners due to numerous errors on the incoming forms received so far.
The reposes to the errors on the part of the government has been to allow property owners an additional four months to get their numbers and forms in order for filing the E9 form, with a lesser penalty for filing later than the July 29 deadline from 100 euros down to 50 euros.
On Wednesday August 3, the Greek parliament had an amendment to the filing procedures submitted to them by the Finance Minister, and the Alternate Finance Minister, to extend the deadline to November 30. Inspectors say that errors are being made on forms being filed and submitted to the tax authorities concerning taxpayers with undeveloped plots of land and was resulting in them having to pay substantially higher taxes.
This year the Greek government has excluded undeveloped plots of lands from property changes, so that they will not be included in the single property tax called ENFIA.
Greece: Feeding Greece’s Tax Addiction Is Starving Its Economy
Landlords face effective tax rates above 100%. Businesses pay 60%, and VAT soaks consumers. No wonder the economy remains stuck in reverse.
The relative calm in Greece this summer compared to last year’s chaos may lead outside observers to believe that the country’s financial problems are on their way to being resolved. After all, the national government, led by the far-left Syriza party, seems committed to implementing the bailout program it signed last year. And negotiations are already under way for a deal on debt relief.
But these negotiations will likely take a long time. No one expects a meaningful restructuring of Greece’s debt before the next German government is formed at the end of 2017. Until that happens, Athens will labor under requirements for budget surpluses that will suffocate the economy. This has made a bad situation on the ground even worse. The combination of overambitious fiscal targets and widespread tax evasion has led, throughout the bailout period but especially under Syriza, to constantly rising tax and insurance-contribution rates, which leave even law-abiding, relatively well-off Greeks unable to meet their obligations.
According to calculations recently released by the Kathimerini newspaper, once the full array of new tax and insurance-contribution increases come into effect early next year, real-estate owners who rent out their property may be forced to pay more than 100% of the income they earn in personal and property taxes. Self-employed individuals who make as little as €10,000 ($11,195) a year will have to pay 60% to 74% of it in taxes and insurance contributions. Private-capital firms—a new category of company, introduced during the recent crisis and designed to boost entrepreneurship—will have to hand over 43% to 60% of their profits to the state, even for earnings as low as €5,000 a year.
It is worth examining some cases more closely. Someone who is self-employed and declares earnings of €5,000 a year will have to pay €1,750 in insurance contributions, €715 in income tax and €650 for the so-called liberal professions’ levy. This last is a lump-sum imposed on everyone who is self-employed, irrespective of income. What’s left is net earnings of less than €1,900.
If a company that is classified as a general partnership declares profits of €5,000 a year, the Kathimerini analysis notes, it will get to keep little more than a quarter of those proceeds. Insurance contributions will eat up €1,752, income tax will require €942 and the professions’ levy will take away another €1,000.
The statist philosophy of Syriza has led it to plug almost every fiscal gap that the demanding targets of the third bailout program have created by increasing tax and insurance-contribution rates rather than cutting spending. Consider steps the government took to complete the first bailout review in June. In addition to increasing insurance contributions both for the self-employed and for most salary-earners, Athens pushed up rates on the value-added tax, on a property tax it had vowed to scrap, and on taxes on hotels, fuel, landline telephone and broadband services, cigarettes, alcohol, coffee and paid television.
As the Bank of Greece noted in a July report, the structure of taxation in Greece, as opposed to the rest of the developed world, is characterized by a greater reliance on indirect taxes than on the direct taxation of income and capital. The central bank notes that this imbalance, evident in the policies of the current government, entails greater economic inequality as VAT increases don’t discriminate between the incomes of consumers and thus hurt the poor disproportionately. For a government of the left, this is a particularly damning indictment.
These policies are having a corrosive effect on tax compliance. Tax and contribution evasion, once the product of antisocial greed and the authorities’ lax enforcement of the law, has now become for many a matter of economic survival. Greece’s VAT gap—the shortfall between VAT revenue owed and actually collected—was already 34% in 2013, compared with an EU average of 15%. The recent increase in the top rate, to 24%, is bound to make the situation even worse.
Like previous crisis governments, the Syriza-led coalition has turned optimism about the future into a strategy. It hopes that its conformist approach will allow it to reap the benefits of normalization, including access to the global bond market and a robust recovery in 2017. But despite some positive progress in other areas, the policy of over-taxation has gone too far. The economy cannot return to health so long as households and businesses labor under such crushing burdens.
Portugal: ‘Daylight robbery’ tax in Portugal on property with a view
The tax authorities in Portugal have decided to increase property tax on residences that offer a good view. The tax on an apartment with decent views and facing south may go up 20 percent, reports The Portugal News. At the same time, the levy on dwellings overlooking a cemetery, or located on the ground floor, or facing north may be reduced by 10 percent. The degree of a so-called noise pollution will be reportedly factored into the tax calculations.
The measure will only affect newly built properties as well as the property currently being reappraised. The step does not aim to gain additional revenue, but rather to tax people according to the homes and luxuries they enjoy, according to State Secretary for Finance Rocha Andrade, as quoted by the daily.
“Our objective is firstly to introduce greater fiscal equity,” he said, stressing that the measure would more precisely reflect the variations in current house prices.
Most residential blocks built in Portugal within the last ten years face south to maximize exposure to the sun for energy reasons. “Now we are going to be penalized for doing what we thought was the right thing?” questioned a leading property surveyor, Joao Fonseca. The Association of Lisbon Homeowners (ALP) criticized the move as well. “These are people’s homes and many of them could now face not being able to pay these new taxes,” said the ALP president, Luis Menezes Leitao, stressing that homeowners with large mortgages initially had not counted on any increases in council taxes, as they had chosen to buy the property they thought they could afford.
Portugal has failed to reach its deficit reduction targets in recent years. In 2010, Portugal’s fiscal deficit was a record 10 percent. The government aimed to reduce the figure to 2.5 percent by 2015, but missed the target only reaching 4.4 percent. According to EU fiscal rules, budget deficits should be no more than three percent of the country’s GDP. Earlier this summer, the EU decided not to fine Portugal for failing to reach its budget deficit goals, setting “new fiscal paths” for the country.
Compliments of International Property Tax Institute – a member of the EACCNY