Update on Property Tax Issues: February 2018

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 which can be found on its website (www.ipti.org).

As far as Europe is concerned, this month’s report includes articles on Greece, Ireland, England, Scotland and Wales. There is a separate IPTI report on the United States, with a focus on New York.

Greece: No “Plan B” for Objective Values

The process for adjusting objective values (property rates used for tax purposes) is fast turning into a fiasco, as it appears unlikely the project can be completed in time, while the Finance Ministry doesn’t seem to have an alternative plan either.

Ministry data show that there has been little response from special property surveyors who had been asked to recommend new objective values to conform with market rates for areas outside the capital. The ministry has even issued a fresh call for assessors to undertake the various Greek regions’ zone price estimates.

In the first stage of the process only one in every three certified surveyors declared that they would participate in the procedure.

Now a ministry official says the government has not worked on a contingency plan in case there are no applications for areas such as Larissa, Ioannina, Kozani, Lesvos and Iraklio, among others, with 2,694 areas reported to have no surveyors reporting.

The deadline has passed for assessors to file an application, and according to both participants and nonparticipants, the new zone rates will come directly from the surveyors’ desks. They will try to telephone notaries and estate agents, and even use classified ads and the register of the Finance Ministry in order to reach a market rate assessment.

That means there will be hardly any on-site inspections, in what seems a strange way to establish the going prices. Even participants speak of a paradoxical process, with the 20 days provided clearly not enough; what is more, property market professionals stress that the rates will not correspond to reality given that most areas of the country have not witnessed any transactions for some years.

The rates that surveyors will submit for the country’s 10,000 zones are not binding for the ministry – they may well be corrected or rejected by the second-degree committee the ministry will set up to evaluate the work of the surveyors. At any rate, it looks like the bailout program’s March 31 deadline for the new objective values will not be met.

Ireland: Revaluation of commercial rates ‘painfully slow’

Firms hit with four-fold rates rises after review, says PAC member FF TD Shane Cassells

Revaluations of the commercial rates businesses pay have only been completed by half of local authorities, with progress on a national review criticised as “slow” by the Comptroller and Auditor General.

The Valuation Office was tasked with conducting a national revaluation of commercial properties in 2001. But since then only 16 of the 31 councils have undergone reviews, the Public Accounts Committee (PAC) heard on Thursday.

The long period since the previous valuations means some ratepayers have faced large “spikes” in their bills if the commercial value of the property has increased, the committee heard. Rates are paid on commercial property to local authorities.

Fianna Fáil TD Shane Cassells said he had dealt with many cases where business owners have been “crippled” by four-fold increases in their rates following a revaluation. “That’s the kind of thing that can put a guy out of business fairly quickly,” he said, adding that the progress of national revaluation had been “painfully slow”.

Mr Cassells said more supports were needed to help businesses struggling with rates increases. Chief executive of the Valuation Office John O’Sullivan told the committee a lot of the difficulties are being faced for the first time. He said any dramatic increases in rates would likely be once-off, due to the current long period of time since many properties’ last valuation.

Extreme

Mr O’Sullivan said in general more than 60 per cent of ratepayers would “receive a benefit” in their rates bills as a result of revaluation process. But there would be “extreme” cases of rates hikes during the national review.

He said the Valuation Office plan to have completed the process by 2021 and then commercial properties in local councils would be revalued every 10 years. The pace of work has picked up since reforms in 2015 streamlined the appeals process for ratepayers, said Mr O’Sullivan.

The national revaluation of rates is separate from local councillors’ power to increase or reduce commercial rates by a given percentage each year. Fine Gael TD Peter Burke criticised the Valuation Office for lengthy delays in assessing new companies, which resulted in many large firms paying no rates.

“You’re not going to have huge businesses running to you to get rated. We’re pushing the small ones hard, some bigger ones are getting away I feel,” he said. The application of rates only applies from the date of the completed assessments and is not backdated.

Officials from the Department of Housing told the PAC new legislation was being brought forward to give local authorities the power to conduct preliminary valuations of new properties that set up, ahead of a formal assessment by the Valuation Office.

The planned legislation would also give local authorities more power to chase up unpaid rates bills. Currently, 84 per cent of rates are collected by councils, with department officials indicating collection rates would ideally be brought up to 96 per cent under stronger enforcement powers.

UK – England: ‘Staircase tax’ could impact council finances, committee chair warns

The Government’s plans to re-introduce the so-called ‘staircase tax’ could have a detrimental impact on local government finances, committee chair warns.

Clive Betts, chair of the Communities and Local Government Committee, has written to the Minister for Local Government Rishi Sunak MP to raise concerns over the draft Non-Domestic Rating (Property in Common Occupation) Bill.

The Bill would allow the Valuation Office Agency (VOA) to revert to how they calculated business rates in multi-occupied properties before 2015. Under this method of calculation, if a business occupied two adjoining floors of a building or two rooms separated by a wall only, they would only receive one rates bill.

However, if they occupied two rooms on either side of a common corridor or two floors separated by another floor, they would receive two rates bills – hence the unofficial moniker ‘staircase tax’.

Following a Supreme Court ruling in 2015, this method of calculation was dropped, although the Government is now looking to reintroduce it under the Non-Domestic Rating (Property in Common Occupation) Bill.

If this new legislation is agreed, ratepayers would be allowed to apply for reassessment retrospectively back to 2010, leaving the impact on individual local authorities unclear. As Mr Betts writes: ‘The Government intends to allow ratepayers to apply for reassessment of rateable value retrospectively back to 2010.

‘So, the rate bills for some ratepayers will presumably be reduced. There will be no corresponding increase in the bills of others; there would doubtless be problems retrospectively increasing taxation.’ Mr Betts goes on to note the Government has left the impact this will have on council finances ‘unclear’ and requests Mr Sunak provide some clarity on the issue. 

UK – Scotland: Scottish businesses facing multi-million pound rates bill

Shops in Scotland face paying £14 million more in tax this coming year than they would if they were based down south, new figures reveal. Firms across the country continue to pay more tax than their English counterparts after the Scottish Government failed to revamp its controversial large business rates supplement.

Figures previously showed large and medium-sized Scots firms will pay £64m more in rates next financial year than those of a similar size in England – and now a full breakdown details the impact on each sector for the first time.

Hotels will pay £2.85m more and manufacturing premises will pay an extra £10.8m, data reveals. Meanwhile, offices face stumping up some £8.15m more than they would in England, while pubs will fork out £850,000 extra and utilities some £11.85m more.

David Lonsdale, director of the Scottish Retail Consortium, called on ministers to take further action to mitigate the impact on firms.

He said: “It remains the case that far too many Scottish shops will still be paying more in business rates than comparable premises down south, equating to £14 million extra this year compared to English based counterparts and competitors.

“In fact, retail accounts for almost a quarter of the 22,000 commercial premises affected by this Scotland-only rates surcharge, and we should all be concerned about the investment-sapping impact of high business rates on our town centres and high streets.

“We hope Scottish ministers will take further action to level the playing field and create a more competitive environment for Scottish retailers, who are already having to contend with a hotchpotch of government-imposed costs including the apprenticeship levy and rises in employers’ pension contributions.”

Mr Lonsdale said shops would be unwilling to hike prices to cover the extra costs, due to fears this might drive customers away at a time of increasing competition from online retailers.

He added: “Everyone want to retain as much custom as possible. If you put prices up, you risk others winning that business.”

The Scottish Government expects to raise £127.8million in revenues from the large business supplement – which is paid by one in eight commercial premises in Scotland – in the next financial year.

The SNP doubled the supplement larger firms pay in 2016, hiking it from 1.3p in the pound to 2.6p. This is added to the poundage rate for non-domestic rates for larger businesses.

Finance Secretary Derek Mackay previously said this will be reduced by the end of the current parliament “should it become affordable”, but retail chiefs have urged him to act faster.

The latest figures were released by Mr Mackay after a parliamentary question by the Scottish Conservatives.

Scottish Tory shadow economy secretary Dean Lockhart accused the SNP of running a “high-tax, anti-business government”.

He added: “How can the SNP government expect businesses to expand and create more jobs when they are punished in this way?”

A Scottish Government spokeswoman said it was offering rates reliefs worth £720 million next year.

She said: “We are committed to supporting business and growing Scotland’s economy and recently accepted the vast majority of the recommendations of the Barclay review of non-domestic rates, going beyond Barclay with additional pro-growth measures in a package widely welcomed by business.

“If a ratepayer disagrees with the Assessors independent valuation of their property they have the right to challenge this.

“We offer will rates reliefs worth £720 million next year including the small business bonus scheme, which will remove the rates burden entirely for 100,000 commercial premises across Scotland.”

UK – Wales: Welsh Government Pushes for Vacant Land Tax

The Welsh Government plans to impose a tax on landowners who fail to develop sites that are ripe for development.

Mark Drakeford, the Welsh Government’s cabinet secretary for finance, said the administration would take forward a vacant land tax to test taxation powers conferred by the Wales Act 2014.

The tax could work in a similar way to a vacant site levy in Ireland. Local authorities would draw up a list of vacant land which is suitable to be developed.

If the land is vacant after a year, the Welsh Government could impose a tax of 3 per cent of the value of the land. After two years, this could rise to 7 per cent.

Drakeford said the first part of any revenue from the tax could be used to pay for the scheme, and remaining revenue to support regeneration.

He told Insider: “It is designed to change behaviour, to bring into purposeful use land which would be standing idle.”

The potential tax would need approval from assembly members in Cardiff, and UK Treasury officials, before becoming law.

Drakeford said there was “a fighting chance” the vacant land tax could be in place within three years at the earliest, provided it was not delayed at any stage.

He said that the process of creating the first Welsh tax was “pretty sketchy”. He said: “We will learn a lot from doing it. We are not talking about a swift process.”

And he said the land would have to have been identified for development: “This is not about saying people’s lawns will be taxed. It is land already identified for a particular purpose, for example, set aside for housing.”

It would be aimed at companies or individuals “land banking” – storing up useful land, or retaining land in order to make a “windfall profit”.

Chris Sutton, Cardiff lead director at property consultancy JLL, said the tax could prove unpopular if it was seen as an increase in taxation, rather than a shift in the base of tax.

Sutton said: “Vacant land tax seeks to encourage development by penalising under-use, but does not improve development viability. 

“There are other ways to incentivise new development – a longer period of exemption from business rates for new development, reduced stamp duty (soon to be Land Transaction Tax in Wales), simplified planning, or reduced planning gain.”

The vacant land tax was one of four taxes which the Welsh Government considered to test its new powers. The others were a social care levy, a tourism tax and a disposable plastics tax.

Drakeford said the social care levy was considered “probably too big an idea to test the machinery2. A plastics tax, popular among some, is being considered at a UK level.

And on the tourism tax idea, he said: “I was persuaded that the tourism market is so different in different parts of Wales that a national tax would not be the best way of responding.”

But he said that giving local councils permission to charge their own tourism taxes could be an “idea to explore”.