Member News

Update on Property Tax Issues: IPTI March 2017

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.

IPTI has put together a selection of brief reports from articles contained in IPTI Xtracts. As far as Europe is concerned, this month’s report focuses on the United Kingdom as media coverage has intensified ahead of the UK Government’s Budget on 8th March and the revaluation of business rates (the property tax which applies to non-domestic properties) which comes into effect on 1st April 2017. However, the report also includes items relating to France, Greece, Sweden and the United States with a focus on New York

New York City and State –

SHARPENING THE PENCIL: The big tax news in New York City every January 15th is the publication of the tentative assessment roll, containing proposed values for the fiscal tax year commencing Jul 1st. For the 2017/18 fiscal year, the tax roll shows a total New York City market value of $1.157 trillion US, up $93 billion (or 8.74 percent) from the prior year’s tax roll. Given that the City’s tax roll is based on 2015 data (the system always has a built-in 1-year lag), the value captured is far from perfect or timely, hence the economic and fiduciary us on property owners to grieve their assessment annually.
What does not make the news very often is the City government’s invocation of its “Change-By-Notice” authority. Under the law, the City has not only the right to correct technical errors on the already-published tentative roll, but in some cases to second-guess itself, effectively re-working one parameter or another to increase the proposed assessments before they are even challenged.
The first of what may be up to a half-dozen change-by-notice lists was made public on February 22nd. While among its 21,395 changes there are certain to be many corrections of a clerical nature, a spot-check reveals valuation increases of up to 15%, and without explanation.

 RACIAL DISCRIMINATION: New York City has a tax classification system that separates residential and commercial property into different classes with different tax rates. There are criteria and guidelines embodied in the tax law to ensure that the annual property tax burden is not inordinately shifted onto any one class as opposed to the other, and fiscal watchdogs “check the math” annually to ensure the City has not engaged in impermissible shifting of the tax burden.
In a somewhat unique way of looking at the tax burden-sharing system, the case of Robinson v. City of New York alleged that the City’s tax classification system had a disproportionate impact on African-American and Hispanic residents, because they were the majority of tenants in the rental apartment buildings that made up a large segment of what is known as Tax Class Two. The plaintiffs claimed that the tax classification system violated the Federal Fair Housing Act, and thus their rights to equal protection and due process.

The New York State trial and appellate courts both dismissed the complaint, finding that there was no proof of actual harm or disparate impact based on race, and no showing of forced segregation resulting from the New York City property tax system.

SELECTIVE REASSESSMENT: In Northern New York State, the City of Troy sued the Town of Brunswick, alleging that the Town improperly raised the assessment of a golf course operated by the City without conducting a municipal-wide revaluation, resulting in a selective reassessment (“welcome stranger”) that is illegal in New York State and (as well as some other taxing ) The City sought to depose the Town Assessor (essentially a pretrial cross-examination), a step generally not permitted in New York tax challenges.

The court granted the deposition, finding that there were suffice allegations of selective reassessment – which, if it occurred – would violate the equal protection provisions of both US and New York State constitutions.

SPECULATIVE VALUATION: In the case of Hampshire Recreation LLC v. Board of Assessors, the taxing authority asserted that the value of a golf course and country club for tax purposes should be based upon the $12,000,000 recently paid by the owner

Throughout the property tax world, sale prices are often given very great – if not total – weight as a measure of value for tax purposes. The trial court agreed with this view, but the appellate court reversed, observing that the amount paid was based on speculation of the property’s future development potential. The appellate court’s finding mirrors the fact that tax valuation in New York is based what appraisers refer to as “value-in-use”, not “highest and best use”.

Around the U.S.-

OREGON: The Seneca Sustainable Energy power plant in Eugene, Oregon won a significant tax history in Oregon Tax Court in late 2016. The company had spent nearly $65 million to build the wood/biomass-burning plant prior to its commencing operation in 2012. The State of Oregon had argued in the tax trial that the plant should be valued at $60 million as of that year, then declining to about $48 million by 2014 to account for obsolescence deducted against its original cost.

The Tax Court disagreed, ruling that the State’s valuation had also taken into account a lucrative contract pursuant to which Seneca sells electricity to the Eugen Water & Electric Board. The judge found that the electricity contract constitutes “intangible property” under Oregon law and cannot be taken into account for property tax valuation. Instead, the judge ruled that the property tax valuation must be based on what the plant would sell for without the contract.  The court concluded that the value for tax purposes should be just $38 million in 2012 and $19 million in 2013.

INDIANA: In Monroe County, Indiana, the CVS drug chain has won a victory in which the County assessor challenged not only the taxpayer’s valuation methods, but a prior series of rulings by the very same Tax Court judge hearing the County’s appeal to her after losing at the county board of assessment review level.

At issue was the use by CVS’ appraiser of comparable rents from general retail purpose properties, rather than just using rents from “successful ongoing CVS” operations. The county board had determined that CVS’ appraisal was the most credible at establishing value-in-use, the standard to be applied in such cases.  On appeal, the County argued that the board’s reliance on prior rulings by the very same Tax Court judge hearing the CVS case were incorrect, and therefore the board should not have relied on them. The judge instead found that the previous decisions had correctly enunciated the value-in-use standard and so affirmed the reduction decision reached by the county board.

United Kingdom: BCC Budget Submission: Action needed on business rates burden sapping businesses
Ahead of the Chancellor’s Spring Budget on March 8, the British Chambers of Commerce (BCC) is urging the government to take action on delivering real reform to the business rates system.
The business group is calling on the Chancellor to use his last Spring Budget to support long-term business investment by taking action to deliver real reform to the business rates system. As it stands, the system creates a number of perverse incentives for business location, property improvement, and plant and machinery investment.

BCC seeks four key measures on business rates from the Spring Budget:

  • Abandon the fiscal neutrality principle in business rates reform – an unacceptable barrier to fundamental reform of the business rates system that is unique to that tax
  • Bring forward the switch from RPI to CPI, currently planned for April 2020, to April 2017
  • Removal of all plant and machinery from the valuation of property for business rates purposes
  • Drop proposals to restrict the ability of the Valuation Tribunal for England to order changes to business rates liabilities

Dr Adam Marshall, Director General of the BCC, said:
“The current rates system is broken, and despite attempts by successive governments to introduce marginal reforms, the fundamental unfairness of business rates remains.
“We’re calling for steps to be introduced which would help alleviate some of the excessive pressure put on businesses by rates. The policy of fiscal neutrality means there are winners and losers across the country from reforms, but limits the government’s scope to bring about fundamental change to the system. Excluding plant and machinery from valuations would remove a perverse incentive for investment, and businesses should be allowed to appeal valuations through a simpler and fairer process.

“Businesses from across the Chamber network of all sizes, sectors and locations, lament the burden of this high up-front cost, which they are forced to pay before making even a penny of profit.”

United Kingdom: Business rates rise threatens London’s restaurants 
London’s pubs and restaurants are at risk of sliding off the menu as they struggle with a looming £336.5m jump in business rates bills.

The Association for Licensed Multiple Retailers, ALMR, which represents leading restaurant chains including Pizza Express, Wagamama and Yo!Sushi, has written to the Chancellor to ask for more transitional relief for the sector ahead of the Budget next month.The average cost of dinner for one in London, which has the country’s highest concentration of Michelin-starred restaurants,  is around £50.As a result, in order to cover the soaring rates bill would means that the city’s restaurants will have to serve an extra 6.7m meals to cover the tax, according to rates specialists at CVS.

However, the rising business rates which come at a time of rising wage bills and the steep rising import costs from a weaker pound will also mean that restaurants and pubs that survive will likely have to rise prices to cover their increases.  

Business rates have become the nemesis of British retailers and restaurants with many revealing they are now forking out more in rates than in rents due to the archaic property tax. The burden is expected to get a lot worse this April when a rates revaluation takes place for the first time in seven years.Because London rents have outpaced the rest of the country since the last revaluation in 2008, the capital’s business rates bill is set to rocket by over 20pc.The capital’s 7,105 restaurants will be stung with a £269.2m rates bill next year, compared to £201.95m this year, according to business rates specialists at CVS.

The restaurants facing the biggest rise rates rise is TGI Friday’s near Leicester Square, which will suffer its rent bill rising by nearly £2m over the next five years.

“Such drastic rises in business rates could leave the capital’s restaurant operators squeezed and – in severe cases – at risk of closure”, said Mark Rigby, chief executive of CVS. “ The worst affected restaurants will see huge increases in their bills in just a matter of weeks”.

Ufi Ibrahim, chief executive of the British Hospitality Association, warned that “some will not survive and with them will go jobs and a lot of the enjoyment rest of us/ and foreign tourists, derive from hospitality and tourism.”

“Already tourism in the UK has Tourism VAT at twice the European average and basic costs are on the rise too. There are 4.5 million people working in hospitality and tourism  and these rises threaten many of these jobs, part of an industry which is the fourth largest.”

Meanwhile, the British Retail Consortium has written to the Chancellor to urge for the Government to implement more frequent revaluations to avoid a sudden abrupt jump in rates and to scrap plans to overhaul the business rates appeal process.

Recent research by Conlumino and Trafford Centre owner Intu revealed that three quarter of international retailers were shunning the UK because of this country’s complex business rates system.

United Kingdom: Blow to City as London offices face £1.4bn rise in business rates bill

Brexit and rising rates may force big names in finance to ditch the Square Mile as mayor Sadiq Khan calls for devolving tax powers to the capital

A sharp rise in business rates for offices in the City of London is threatening to undermine the Square Mile’s drive to remain a key financial centre in Europe after Brexit. The business rates bill for offices in the City will rise by £1.4bn, or 33%, over the next five years.

This means the 12,348 office addresses in the City will see their overall rates bill rise from £876m in this financial year to an average of £1.16bn a year over the next five years, according to property agent CVS.

The bill will be picked up by occupiers of the offices, and is a new blow to the City’s banks, law firms and insurance companies as they weigh up their options after Britain’s vote to leave the European Union.

Goldman Sachs, Nomura and law firm Linklaters all face tax rises, as does the Bank of England, which will pay £21m in business rates over the next five years and faces an increase of more than £1.5m a year on its Threadneedle Street headquarters.

The disclosure of the bill for the City will increase the pressure on the government to make changes to the business rates system in the budget next month. Sadiq Khan, the mayor of London, said the business rates increase facing thousands of businesses across the capital – including small high street shops, pubs and restaurants – is “unacceptable”.

The overall increase in the business rates bill for London is expected to be £9.4bn over the next years.

In a letter to property representatives, seen by the Guardian, the mayor said he is working with the local authorities in London to push the government to devolve more responsibility for the tax to the capital. This could allow London to be “decoupled” from national revaluation arrangements, he said, by valuing its own properties and setting its own tax. At present all properties in England are valued by the Valuation Office Agency (VOA). The business rates bill is then spread out across all properties, with the most valuable paying the highest tax. Business rates have already been devolved to Scotland, Wales and Northern Ireland.

The increase in business rates from April is the result of a new revaluation of the rental value of property in Britain. This is supposed to take place every five years but the previous revaluation was controversially delayed by the government for two years, making the change in bills from April more pronounced. London will be particularly affected because the rental value of property in prime areas has increased substantially since the financial crisis.

Khan said in the letter: “The GLA is working with London councils and the leaders of the 33 local authorities in London to encourage the government to devolve more responsibility for the administration of business rates to the capital.

“This would include devolving responsibility for the VOA to London government which would allow the capital to be decoupled from the national revaluation arrangements. Such devolved arrangements already operate successfully in Scotland, Wales and Northern Ireland.

“This reform would potentially allow us to avoid a repetition in five years’ time of the very large increases in bills which have arisen in London as a result of the 2017 revaluation. It would also provide us with an opportunity to ensure that the VOA locally is adequately resourced to deal with the challenges of managing business rates in capital moving forward.”

Mark Rigby, the chief executive of CVS, backed the prospect of London taking more control of its business rates.

“With £9.38bn of business rates increases looming for London’s 32 boroughs and the City over the next five years, and as we head down the path of fiscal devolution for the capital, a system which works better and more efficiently for businesses in London could not be more important,” he said.

“I support the mayor on his forward-thinking approach that London should have more power over the valuation of its commercial properties, and subsequently, with the right support for the Valuation Office Agency, this should lead to a swifter resolution of appeals for the capital’s ratepayers and provide greater political, local accountability.”

The government is already pressing ahead with plans to allow parts of the country, including London, to retain 100% of their business rates by 2020. However, there are concerns this could leave some local authorities underfunded.

Despite criticism of the business rates increases scheduled for April, the Department for Communities and Local Government, which oversees the system, has said it is fair because the revaluation reflects the state of the property market. Many businesses based in less affluent areas will see a cut in their rates bills as a result of the changes.

A spokesman for the government said: “Our financial services sector makes a crucial contribution to our economy and we’re determined that it continues as the hub for both Europe and the rest of the world.

“This revaluation improves the fairness of rate bills by making sure they more closely reflect the property market. That means nearly three quarters of businesses in England will see no change or even a fall, and for the minority who do face an increase – including those in the City – we have introduced a £3.6bn transitional relief scheme.”

 United Kingdom: NHS to be hit by crippling business rates rise, analysis finds

NHS hospitals and GP surgeries in England and Wales face a £635 million hike in their business rates over the next five years, it emerged as health authorities threatened legal action.  A new analysis found that health authorities, many of which are already struggling to cope with huge financial pressure, will see their business rates will rise by an average of a third by 2021.

Some of the country’s biggest hospitals will see their business rates double amid warnings that they will have to find further savings to fill black holes in their budgets. Theresa May is already being urged to reconsider “penal and unfair” rises in business rates amid warnings that some firms face being hit with a huge rise in their bills.

Ministers will on Wednesday face calls to end anomalies in the tax system which see high street shops pay higher rates on small premises than online giants do for vast warehouses.

The new rates, which take effect in April and represent the first change in almost a decade, will see companies paying rates which have been calculated to take into account the rise in property prices since 2008. It means many businesses in the South East will face soaring rates while others in areas where High Street rental prices have fallen will benefit. The Institute of Directors urged the Government to “level the playing field” to help smaller businesses after an analysis by business rates specialists CVS suggested that the business rate bill for Amazon’s nine distribution centres will fall by 1.3 per cent.

By contrast street retailers in parts of the country, particularly in the South East, are facing rises of up to 400 per cent.

Stephen Martin, director general of the IoD, said: “In the short term, the Government must take action to relieve some of the pressure on the small businesses facing hikes in business rates and encourage companies to bring forward productivity-boosting investment. “But we should also look to the future, launching a new Tax Commission to look at what the growth of self-employment and online business mean for the tax system.

“The goal must be a much more level playing field, which treats both high street and online businesses fairly and adapts to the growth of the ‘platform economy’, which is leading to an increase in flexible work.”

From April 2017 1.9m British properties will be valued based on 2015 rental values, rather than their 2008 values. The revaluation, which normally occurs every five years, was delayed to avoid disrupting the general election.

As a result, the majority of British companies which have properties with a rateable value of more than £15,000 will face soaring rates bills as rents have increased since the recession. Some retailers in the capital will face 400pc increases over the next 5 years, while rates will fall for many businesses outside London. In regional towns high street rents have slumped since the financial crisis.

Annual rates increases have been capped at 42pc, but this is significantly higher than the 12.5pc cap during the last revaluation in 2008.

The Government is also reforming the business rates appeal process. As part of the reform the Valuation Tribunal for England (VTE) can only order a change to the rateable value of a property if the existing valuation was “outside the bounds of reasonable professional judgement”. Currently the VTE can order a change where it sees fit.

A worrying part of the proposed changes means that any appeal claim within a margin of error – expected to be 15pc – will be automatically thrown out.

Analysis for The Telegraph has revealed that the Government typically sets aside between £1.2bn and £1.5bn for business rates miscalculations. As a result businesses could face a black hole of up to £6bn over the next five years.

The changes mean that businesses will have to pay up, even if the bill is wrong.

The Telegraph has already revealed how the changes have led to warnings that some retailers, charities and retailers will fight to survive because they face the “perfect storm” of rising rates, the increased cost of the living wage and Brexit uncertainty.

It was on Tuesday claimed that a sharp rise in business rates for offices in the City of London is threatening to undermine the Square Mile’s drive to remain a key financial centre in Europe after Brexit.

The business rates bill for offices in the City will rise by £1.4bn, or 33 per cent, over the next five years.

Sadiq Khan, the Mayor of London, has called for responsibility for valuing properties and setting business rates to be devolved to the capital.

There is now mounting concern in Whitehall about the impact of the business rate rises on the NHS. More than 150 health authorities have joined forces and are threatening to mount a major test case against a local authority unless they are granted an exemption or rebate.

One in six Accident & Emergency departments are under threat of closure as part of efforts to close a £22billion hole in the health service budget by 2021.

A total of 33 casualty units could face closure or being replaced with minor injuries units. Hospitals will be hit hard as they are large premises and the equivalent cost of rebuilding, which the rate is based upon, would be high.

Business rates are supposed to be reviewed every five years, but the previous revaluation was controversially delayed by the government for two years, making the change in bills from April more pronounced.

The analysis by Gerald Eve, a firm which advises businesses on rates, found that business rates for hospitals will rise from £328million this year to £418million in five years’ time, while GPs and health centres will see their costs rise from £257million to £332million a year over the same period.

Some health authorities will have to pay millions more, including Peterborough City Hospital, which will see rates rise from £2.5million to £4.8million by 2021, while the University Hospital Birmingham NHS Trust’s bill is set to rise from £4.2million to £7.6million.

Royal London Hospital in East London will see its bill rise by nearly 60 per cent to £9.7million.

Peterborough and Stamford Hospitals NHS Foundation Trust said that rising business rates mean that it needs to put “additional cost efficiencies in place” on top of existing savings.

The trusts are being represented by Billfinger GVA, a property consultancy, which said that hospitals are facing “exponential” increases in business rates.

Jerry Schurder of Gerald Eve, a firm which advises companies and public sector bodies businesses on rates, said: “At a time when the NHS is under huge budgetary pressures, these rises in business rates liabilities highlight just how punitive the system has become and will be a cause of real concern for those tasked with delivering hospital and clinic services.”

Sally Gainsbury, a senior policy analyst at the Nuffield Trust think tank, said: “Hospitals are currently overspending at a rate of between £150million and £250million a month. They will struggle to absorb an extra hit like this – the NHS is already in severe financial difficulties.

“When a hospital has to cut costs, it doesn’t take long before they end up having to look at their staffing numbers, at doctors and nurses. They will be rushing around having to treat more and more patients.”

A spokesman for the Local Government Association said: “We have sought legal advice from counsel. We believe that NHS trusts and foundation trusts are not charities, and that the applications for rate relief are therefore unfounded.”

A Government spokesman said: “All properties, including hospitals, have their rateable values set independently by the Valuation Office Agency and taxpayers have the right to appeal the VOA’s valuation. 

“This revaluation improves the fairness of rate bills by making sure they more closely reflect the property market. We have also introduced a £3.6 billion transitional relief scheme to limit the impact of any increases.”

 United Kingdom – Scotland: Business rates burden must be addressed

IT HAS been seven years since the last commercial property revaluation. With two Holyrood and two General Elections, two referendums, and enormous fluctuations in economic conditions since then, not even Nostradamus would have been able to confidently predict each businesses liability in advance.

Although rates revaluation sounds tedious, it’s crucial to the health of the retail industry. Business rates are the single largest tax paid by retailers, many of whom scratch their heads wondering what they receive in return. Last year retailers paid one-quarter of the £2.8 billion raised from rates.

To explain the problem, the current approach to revaluation is a bit like getting a new council tax bill – but with little idea why or how the band your house is in came about, with only weeks to prepare, and as if the tax rate had risen consistently over the past seven years. It’s unsurprising firms have been concerned.

For businesses in geographical areas or sectors deemed to have done well over the seven years, the likelihood is they will face significant rises. For retailers operating in a highly competitive market with narrow margins that might well mean a significant extra hit on top of a number of other costs, including the new apprenticeship levy.

The theory is this rates rise should be offset elsewhere. However, in areas which have performed less well, businesses may already have suffered. To learn that their rates bill might now be lower is little comfort.

There is a systemic problem here. Business rates are a revenue for government, but retailers have found themselves forking out more, most notoriously the 5,077 businesses who still pay the Large Business Rates Supplement, which doubled last year. Meanwhile, shop numbers have fallen 1,700 over these seven years, with 10,000 fewer retail jobs.

It’s this tinkering which has created a tax leviathan. The current system is anachronistic, unwieldy, unresponsive and broken. That’s why the SRC campaigned for fundamental business rates reform. We were delighted when ministers announced Ken Barclay would lead a review, and we’ve already made our arguments to his commission.

The case is straightforward. Retailers want a system which is flexible, simple, and competitive. First, we want to see a commitment to three-yearly revaluations. That would ensure the tax flexed with economic circumstances and gave firms certainty. It would reduce the enormous number of appeals which bedevil the system.

Secondly, the whole system needs simplified. Why does Scotland have 14 Assessors who calculate valuations when the whole of England and Wales has one? Similarly, politicians’ endless tinkering with the system has created innumerable reliefs and levies – these need to be simplified.

Finally, business rates need to be focused around promoting economic growth rather than just raising revenue. To the Government’s credit the small firms’ relief is a start. But the case for only promoting small businesses is flawed. One of the structural failings of the Scottish economy is the failure of SMEs to upscale their businesses. When the tax system disproportionately penalises them for doing so, it’s hardly a surprise.

 United Kingdom: STA ramps up solar business rates campaign ahead of April adoption

The Solar Trade Association is ramping up its campaign against a proposed increase in solar business rates, aiming to secure a U-turn ahead of new rates coming into force on 1 April 2017.

The STA is to meet with financial secretary to the Treasury Jane Ellison today to discuss the issue, with the association hoping to convince the government that commercial solar rooftops should not be penalised in such a fashion.

After coming to light last summer, the proposed increase in business rates – which could see systems designed for self-consumption hit by eight-fold increases in taxes – has created considerable uncertainty in the rooftop market.

Although chancellor Philip Hammond could prevent the increase via legislation – and next month’s spring Budget would provide ample opportunity to do so – the increase still stands to come into effect from 1 April 2017.

Leonie Greene, head of external affairs at the STA, told Solar Power Portal that the trade body would be using the discussion to put across the position the UK solar industry finds itself in following the raft of cuts enacted over the past 18 months.

Central to the discussions will be the business rates issue set against the backdrop of current energy policy, the anti-competitive nature of the taxes and how sites designed for self-consumption over export are to be penalised.

“The case we have is very strong – we’re confident of that. We know other departments are on our side so this comes down, yet again, to the Treasury & its willingness to look objectively at the facts. From an economic perspective solar is a no-brainer; we estimate parking this tax hike & very modest reforms to FITs will unlock a billion of extra investment in solar rooftops this parliament,” Greene added.

Opposition to to the business rates increase on solar is widespread throughout the political landscape, with London’s deputy mayor for environment and energy Shirley Rodrigues this week adding her voice to the calls to amend the plans.

Speaking at the Energy Storage and Connected Systems conference, she said the government needed to “stop changing the tax system to disadvantage renewables and low carbon energy generation”, using the business rates issue as the latest example.

The STA’s meeting coincides with the delivery of a letter to the Treasury signed by schoolchildren from Eleanor Palmer Primary in Camden pleading for the increase to be scrapped. The school installed solar on its roof last year after raising £19,500.

Supermarket giant Sainsbury’s is continuing to support the fight against the new rates having been one of more than 160 organisations to address the chancellor last year.

Meanwhile a petition launched by Greenpeace calling on chancellor Philip Hammond and PM Theresa May to abort the increase has neared 150,000 signatures. 

United Kingdom: Rise in business rates favours online retailers over high street

Amazon warehouses will see their rates fall while average London shop pays 14% more

New business rates that will apply from April will skew competition further in favour of online retailers at the cost of high street shops, according to new research. 

The typical London shop is facing a 14 per cent rise in rates, while online retailers operating from out-of-town warehouses will only pay an extra 2 per cent, according to analysis by CVS, a business rates and rent consultancy. 

“If you’re sending your product straight to the consumer, and your business rates are based on industrial warehouse rates, you’ve a massive competitive advantage,” said Alan Hawkins, of the Independent Retailers Association. “The high street is being left with its historical cost base, and people go and window-shop and then buy it online at home.”

Property costs such as rent and rates can add up to half of all costs for retailers, according to estate agents Savills, while the costs of distribution centres are much lower.

Across the country, CVS said the average shop faces an extra 8.4 per cent in rates. But there are wide disparities and some central London shops face 100 per cent increases. 

By comparison, distribution centres for retailers will pay 1.6 per cent more. According to CVS’s calculations, Amazon’s warehouse bill will fall slightly, Asos’s warehouse in Barnsley will see no change in rates, and Boohoo, the online fashion retailer, will benefit from a 13 per cent fall in rates on its Burnley facility. 

Amazon said business rates were rising on its offices but declined to comment further.

Business rates have been revalued for the first time in seven years and are calculated on the rental value of the premises. Mat Oakley, head of commercial property research at Savills, said the revaluation would hit smaller retailers since the “nationals will see increases in the south balanced out by decreases elsewhere”.

In central London the change will “draw into question the need to be in the West End, or have as many stores in the West End” and he said that some chains are exiting the area. He said there are “more impending voids” on Oxford Street, the capital’s principal shopping street “than we have seen for a while”. 

Mr Oakley said the gaps on Oxford Street would fill because of the desire among many companies, including a growing number of manufacturers such as Dyson and Tesla, to have a flagship store there. 

But high streets elsewhere may suffer. “Many high streets up and down the country have seen amazing regeneration over the past five years and we are at risk of losing it all,” said Mary Portas, the retail expert who conducted a government review on the high street.

“We’ll end up with more restaurants and bars that are owned by chains. There won’t be fashion shops or butchers, it will be chain cafés and restaurants and I think that’s terribly sad,” she added. 

Jeanette Winterson, the novelist, runs Verde and Co, a deli in east London, which faces closure after being issued with a 59 per cent increase in rates, phased over three years. “It seems insane to me that as we are about to trigger Article 50 and when sterling has tanked, the government should expect London businesses to find more money,” she said. 

United Kingdom: Small businesses ‘facing bankruptcy’ over rates rise
Lobby groups seek increase in relief threshold and simpler, fairer system in Budget

Groups including the CBI, the Institute of Directors and the British Chambers of Commerce have demanded an easing of exemption rules and other reforms of business rates as a key request in their submissions to Treasury before the Budget.
“This is not about the John Lewises or the Tescos,” said Stephen Herring, head of tax at the IoD. “Some of the [smaller] businesses will face the question, ‘Do we carry on in business or do we close down?’ Without government action we are looking at a significant increase in bankruptcies.”

The IoD is calling for Philip Hammond, the chancellor, to raise the threshold for small business rate relief, a move it believes would have little impact on the overall take from the tax.

“As most business rates are paid by much larger corporations, extending business rates relief to all SMEs with business properties up to a value of, say, £50,000 will not be unduly expensive to the Exchequer in comparison to its broader economic impact,” Mr Herring said.

The burden of paying business rates, a property tax levied in proportion to rents, is being redistributed around the country in April for the first time in seven years, taking into account movements in the property market. The maximum rise will be as high as 42 per cent for businesses occupying properties that have risen sharply in value.

Business groups say the rises will not just hurt companies in London and the south-east, where property prices have gone up the most, but in other regions such as Aberdeen. They believe small companies such as high-street shops, cafés, and small retailers will be hardest hit.

Rain Newton-Smith, the CBI’s chief economist, said the current system of business rates was “weakening” the competitiveness of companies of all sizes and called on the chancellor to make the system “simpler, fairer and more competitive”.

“The complexity in the current business rates system can act as a barrier to new and smaller businesses and when coupled with rising inflation and other costs, it is making life that bit tougher for them,” she said.

Adam Marshall, director-general of the BCC, said that while successive governments had prioritised lowering corporation tax, higher upfront costs such as business rates had hurt growth and investment in business communities across the UK. 

“Currently, when firms invest in plant and machinery, their business rates go up. Removing plant and machinery from the scope of business rates in the next Budget is one way ministers could encourage firms to invest at a time of uncertainty and change,” he said. 

London’s tech start-ups face biggest bills

Tech start-ups in London will be some of the hardest hit companies by the business rates revaluation because they are often in trendy areas that were once cheap, writes Conor Sullivan. 

Joe Mathewson, co-founder of Firefly Learning, which develops educational software, said his company’s rates bill was going up 80 per cent, roughly half of which takes effect in April 2017 and the rest a year later.

His company is in Hammersmith, where he said rents had shot up in the past few years. He wants to expand his company from 50 to 100 staff, and find space for them to work, and so the tax rise was “taking money out of that budget. It is not allowing us to expand the team as quickly as we want to”.

However, his real gripe was that rates bills are set as half of rent, a “huge amount” that made it harder to compete with businesses abroad.

He said he was “quite frustrated that there has been this government policy [to cut] corporation tax, which ultimately only helps people who want to make large profits, not if you’re high growth and want to reinvest in your business”.

It would take “quite a lot” for him to move the business away from London, he said, but he added that it had an office in Sydney — “this is the kind of thing that makes you want to hire people in Sydney”.

Harry Briggs, a partner at venture capital firm BGF Ventures, which invests in tech start-ups, said the business rates rises could be the last straw for some companies that remained in Shoreditch. The area was nicknamed Silicon Roundabout for its concentration of tech businesses. “Everyone’s going to move further out and you’re going to lose that hub effect . . . Shoreditch is being taken over by trendy loft apartments.

“People are moving out to places like Bermondsey and Haggerston, which is fine, but everyone’s more dispersed and there’s less sharing of ideas, which is a shame.

“There are really big problems in London — we desperately need more affordable housing, more infrastructure, it’s shameful how bad the roads are and we have companies waiting six months for broadband. If those problems were being fixed [with the higher tax], that’s somewhat understandable, but if it’s just paying for other parts of the country to be subsidised, then that’s unfair.” 

Greece: Greeks pay the heaviest property tax after the French and the Brits

High property taxation is hampering the recovery not only of the real estate market but also that of the economy in general. After successive property tax hikes in recent years Greece has one of the European Union’s highest property tax burdens as a ratio to gross domestic product.

European Commission statistics show that Greece is behind only France and Britain in terms of property tax as a percentage of 2015 GDP. Greek owners have to pay what amounts to 2.5 percent of this country’s GDP, while in Germany the amount does not exceed 0.5 percent. The rate is even lower for neighbouring countries such as Italy, Cyprus, Bulgaria and Turkey.

In its latest economic bulletin, Alpha Bank argued the Single Property Tax (ENFIA) continues to put people off investing in the real estate market, where transactions have all but dried up, while obstructing the rebound of construction activity in the country. “It is also a considerable obstacle to any increase in residential property prices, along with the expected recovery of GDP,” Alpha analysts stress. On the other hand, it is remarkable that despite the burden on households from ENFIA, the tax continues to fetch revenues, as property levies of various forms showed an increase for the fifth consecutive year since 2011, when ENFIA was first introduced (as EETIDE).

However, the issue now is the discrepancy seen between the increased rates and citizens’ diminishing taxpaying capacity, as the gap has broadened, according to Alpha’s report. The Bank of Greece agrees, saying in a recent report that the high taxation deters investors, with a clear impact on the market and the entire economy.

The federation of property owners (POMIDA) has warned that the tax burden many owners face grows every year, while it is actually the number of those who pay that should increase. 

France: Paris to Triple Tax on Second Homeowners

Second homeowners in Paris will be hit next week with an increase in property taxes, as the city’s policymakers attempt to tackle its chronic housing shortage, but several experts believe the measure’s impact will be minimal.

Hot on the heels of other major cities, including Vancouver, that have made similar moves, Paris’s second homeowners, who currently pay an extra 20% tax in addition to regular property taxes, will see that jump to 60% on Monday.  

This is part of Paris City Hall’s plan to reduce the number of vacation homes in the city, with the hope being that these measures will entice more well-off homeowners to either rent their properties to permanent tenants to recoup some of the costs, or sell them altogether.

According to The Atlantic’s CityLab, there are more than 100,000 second homes in Paris, accounting for almost 10% of the city’s housing stock, and the city is concerned that many of these will remain empty for large parts of the year.

However, several experts who spoke to Mansion Global are skeptical that the upcoming property tax increase will have the desired effect.

“It isn’t going to have the desired effect because if your second home is worth around €3 million and you have to pay an extra €1,000 a year in tax you’re not going to be that bothered,” Mark Harvey, a partner at real estate consultancy Knight Frank, said. “This is just hot air.”

Hugo Thistlethwayte, head of the international residential team at Savills, another real estate consultancy, added that while French taxes on property are already quite high (particularly the wealth tax), local taxes tend to be very low.

“It’s not a drop in the ocean, but it’s very manageable,” he said. “I don’t think it in itself will have a huge effect.”

Instead, Mr. Thistlethwayte believes that France’s presidential election this spring will have more of an impact on the second home market, as a right-wing government would be more likely to review the wealth tax. This, however, would encourage demand for second homes.

Laurent Lakatos, a director at Databiens, a Paris-based real estate data firm, also doesn’t believe that this new tax will encourage second homeowners to rent out their properties, as there is too much protection for tenants instead of landlords.

“These properties are not rented because the regulation on the tenancies are too high. There’s too much tenancy protection, which cuts off the fluidity of the market,”Mr. Lakatos said.

In Paris, tenants can insist that landlords continue to rent a property to them for up to three years following notice to terminate a contract, while rent is also capped in certain areas.

Sweden: OECD Recommends Swedish Property Tax Reform
The OECD has recommended that Sweden rebalance its property tax system. 
In its latest Economic Survey for the country, the OECD said that Sweden’s favorable tax treatment of owner-occupied housing is regressive, benefiting relatively high-income households most and contributing to the high demand for housing. It said it also encourages household indebtedness. 
The OECD recommended that the Government reform the recurrent property tax to better align tax charges with property values, and phase out the deductibility of mortgage interest rate payments. It did however suggest that interest deductibility should be phased out over a long period so as to avoid destabilizing the market.
The OECD also said that the Government should continue to gradually phase out exemptions to the carbon tax. 

Compliments of International Property Tax Institute – a member of the EACCNY