Business rates revaluation 2023 will hit small retailers hardest

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All non-domestic properties usually have their business property Rateable Value (RV) revalued every five years by the Valuation Office Agency. The next revaluation is due to take place on 1 April 2023.

What is Rateable Value?

The value is determined by the Valuation Office Agency, a branch of HM Revenue and Customs HMRC). The rateable value is based on an assessment of the annual rent the property would rent for if it were available to let on the open market at the fixed valuation date.

The rates payable are calculated by applying a multiplier, before any relief is applied. The multiplier is set each financial year by the government. In 2022 the multiplier for premises over £51,000 rateable value is 51.2p.

Until the revaluation 31 March 2023, the rateable values will be based on a valuation date of 1 April 2015 and from April 2023, the rateable values will be based on a valuation date of 1 April 2021.

It’s important for business rates payers to submit your rental information to make sure your business rates are accurate. HMRC says that revaluation is not designed to raise extra revenue overall, but the changes can mean significant changes for individual districts and properties.

A long awaited reform

Retailers have welcomed long-awaited business rates reform which is widely expected to reduce retail ratable values throughout England and Wales by around 10% when the changes come into effect on 1 April 2023. Rates will varying across different geographies, sectors and retail categories and it is expected many large retailers will see big reductions.

The changes will potentially save some of the large retailers many millions of pounds and coming at a time when other costs of occupation, particularly energy cost rises, this will be very welcome. According to property agents Savills, the revaluation will favour larger stores – these are likley to see rates reductions in the region of one-third, whereas with smaller stores any reductions will be more likely under 10 per cent.

The news has generally been met with positivity, and as a consequence, “we have seen an up-tick in landlord and tenant activity since the announcement, with expansionist retail occupiers gaining confidence despite ongoing economic and occupational headwinds,” says Savills.

Tom Whittington, Director, Commercial Research at Savills says:

“The revaluation favours larger stores (> 1,850 m2), which will see rates reduce by more than a third, compared to small stores (< 750 m2), with reductions of 8%. This should benefit prime units for fashion and comparison goods and has been met with enthusiasm within the shopping centre market, where stores with larger footprints tend to account for a greater proportion of revenue than non-prime high street units. The challenged department store market has been granted significant respite with a 30–40% reduction; a silver lining that could support a recovery for those operators still active.”

Meanwhile agents, Colliers International’s Head of Business Rates Team, John Webber says:

“Colliers has been highly vocal in its call for reform of the business rates system, which unfairly penalises the retail sector who pay over a quarter of the total £26 billion (net) business rates tax bill, but whose gross value is less than 10% of the UK economy. High business rates have been cited as one of the key factors in the decline of many of the UK’s high streets.”

Some key points highlighted by Savills:

The key points are:

• Falling RVs for much of the sector nationally, reducing by an average of 10% for retail and 2.2% for leisure, but with far more significant changes apparent when drilling into specific assets and locations.
• No downwards phasing of liabilities – this means that a property will have its entire reduction in rates payable from day one. This was unexpected but very good news. Increases will remain phased.
• Rate reductions appear to favour larger units and prime retail and leisure locations, with some off-pitch, local and independents biased locations significantly worse off.
• However, a continuing benefit to small businesses is the 50% relief being given to retail, leisure and hospitality occupiers in 2022 as a result of coming out of Covid. This will be increased to 75% relief in 2023, but subject to a cap of £110,000 per business (not per property)
• A cap on the annual multiplier – it was set to increase by inflation (10.1%), but for 2023–24, it will be frozen at the current level.
• Encouragingly, we’re seeing deals that were teetering on the edge now progressing as a consequence to lower RVs and savings softening the blow of other increases to occupational costs.
• The relief felt by retailers is tempered for those exposed to large tracts of logistics space, which are seeing an average rates increase of 38%. However, most retail brands’ store portfolios significantly outweigh their storage space.

*Transitional relief traditionally aims to phase in changes in liability so that an occupier facing a large increase in rateable value doesn’t immediately bear the full brunt of an overnight increase in liability. However, this usually works two ways: While the transitional relief limits increases, it also limits decreases. The treasury says it should be fiscally neutral so that downward transition pays for upward transition, and therefore affecting individual businesses differently. The good news is that downward liability phasing will no longer apply this time.

What will be the impact of the 2023 revaluation on different parts of retail and leisure?

Savills has concerns that the benefits of the 2023 revaluation appear to favour larger, prime and mainstream retailers, so there is risk at local high street level. Secondary or non-prime retail may have received a bit of a raw deal as some of the largest increases that Savills has identified are in convenience, retail services and independent-biased locations. These are categories that the agent has championed as “important differentiators and a potential antidote in ‘failing’ high streets and shopping centres.”

“Some businesses that typically serve communities and have proven resilient during the last few years against a backdrop of severe headwinds may now find themselves being punished for their success. Yet the backdrop to challenging market conditions and oversupply remain ever-present.

“Given rising occupational costs, any increase in business rates risks market failure, which would speed up the urgency for repurposing in some markets. Part of the rationale for seemingly high increases for smaller businesses could be from the lack of adequate evidence or previously low rates being rebalanced. Even if deemed ‘fair’, the scale of the uplift in some areas could be extremely damaging. The counter-argument to this, however, is that small businesses continue to benefit from rates relief, at least in the short term,” says Savills.

Business Rates revaluation 2023

View Full Article: Business rates revaluation 2023 will hit small retailers hardest

Industry finds holes in energy scheme’s bid to cut bills

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Propertymark has voiced fears that the government’s ECO plus scheme risks excluding many landlords with low-rated properties.

In its response to the Department for Business, Energy and Industrial Strategy’s consultation into the scheme to help fund home insulation, the industry body warns of the dangers of omitting those landlords who have invested in properties rated with an F and G Environmental Performance Certificate (EPC).

Funding eligibility

It says: “We agree that PRS households in EPC bands D and E should be eligible for ECO+ but argue that it would be more efficient for the administration of the scheme to allow PRS households in EPC bands F and G to be eligible for funding. Under the proposals any landlords investing in properties that have an F or G rating could be trapped with this asset with no real mechanism of support to improve the property to get the property fit for human habitation and energy efficient.”

Under the proposals, PRS households would also not be eligible for secondary measures – anything other than primary measures such as underfloor heating, party wall, cavity wall and roof insulation. This rule wouldn’t apply to the social rented sector, which Propertymark believes is unfair.

Accredited suppliers

It challenges “overzealous” proposals that retrofitters should comply with both TrustMark and PAS2035 standards, based on the difficulty finding even Trustmark accredited suppliers for the Green Homes Grant.

It also urges the government to rethink its plans to exclude PRS households from being eligible for cavity and loft insulation grants. Propertymark adds: “According to the 2019 English Housing Survey, private rented dwellings had the highest proportion of uninsulated cavity walls across tenures (25%), with owner-occupied (20.8%), local authority properties (24%) and housing association homes (20.2%) at lower but still significant level. This would be a golden opportunity to address this shortfall and to achieve a baseline across all tenures.”

View Full Article: Industry finds holes in energy scheme’s bid to cut bills

Get a move on with PRS reforms, council tells Gove

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Cherwell District Council has pressed the government to urgently introduce the long-awaited Renters Reform Bill to help it rebalance the relationship between landlords and tenants.

The north Oxfordshire authority has written to Housing Secretary Michael Gove asking him to bring forward proposals as soon as possible. It says it is responding to public concern over the dangers of substandard housing and wants greater powers for local authorities to intervene when it becomes necessary.

Housing Minister

There’s still no timetable for the Bill, although Housing Minister Felicity Buchan told the Levelling Up, Housing and Communities committee in November that it was a priority and there was a “desire to get on with it”.

Councillor Nicholas Mawer, portfolio holder for housing, says making sure everyone has housing that meets their needs is a key commitment but that all too often it finds troubling examples of bad practice, placing more stress and pressure on tenants. “When required we will not hesitate to take enforcement action to support tenants, and the promised measures – including fresh powers to tackle failings by social housing landlords – would enable us to do more for our residents,” Mawer explains.

Tenant Charter

“We are keen to support this rebalancing of the relationship between tenants and landlords locally and are in conversation with tenants and social housing providers to help shape a new Tenant Charter for our area.”

The council has form as a proactive authority; in 2020, it began rewarding prompt paying HMO landlords by giving them one of the biggest ever discounts handed out by a local authority. Non-compliant landlords can expect to pay up to £1,050 for a new licence, but compliant landlords can renew a five-year licence from just £450 (£650 for first time applications).

View Full Article: Get a move on with PRS reforms, council tells Gove

Petition to reverse Section 24 forces government to respond

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A petition urging the reversal of the controversial Section 24 tax changes for landlords will get a written response from the government after topping the necessary 10,000 signatures.

Simon Foster’s e-petition has now gathered 17,266 names, up from 9,811 signatures just before Christmas. Landlords in Orpington, Ilford North, Ruislip, Enfield and Harrow have been particularly keen to put their name to the petition, where at least 100 have signed up in each constituency.

Finance costs

The Midlands-based investor wants the government to reinstate the ability of landlords to set the full amount of mortgage interest against rental income before tax is calculated. Announced by George Osborne in 2015, the tax relief was replaced by a basic rate reduction from their income tax liability for their finance costs of 20%.

Foster explains that as a small, well-established private landlord, he is now struggling to make any money from letting properties. “Unless the ability to offset mortgage interest against rental income is reinstated, I will – like many – be forced to sell my properties,” he adds. “This could reduce the number of properties available on the private rental market.”

Parliamentary debate

The government has promised to respond in the next 16 days to the petition which runs until 10th May. If it tops 100,000 signatures by then, it will force MPs to debate the topic in parliament. Some e-petitions are considered for a debate before they reach 100,000 signatures, but this is rare.

You can sign the petition here.

View Full Article: Petition to reverse Section 24 forces government to respond

Bernie Wales: Why leasehold law is never boring

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He’s a well-known character among landlords and for anyone interested in leasehold property management, he is the ‘leasehold guru’.

And with 40 years of experience in the sector, Bernie has built up lots of experience.

He also warns that many leaseholders will need to take note of a new law taking effect that could have a huge impact on their building –

View Full Article: Bernie Wales: Why leasehold law is never boring

Record number of sellers leads to a ‘Boxing Day bounce’

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The number of new sellers putting their home on the market on Boxing Day leapt by 46% compared with the year before to set a record, Rightmove says.

There was also a big jump in the number of sellers wanting their home valued between Boxing Day and New Year’s Day –

View Full Article: Record number of sellers leads to a ‘Boxing Day bounce’