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17/02/2009
History repeats itself for bombsite Britain
Mike Hymanson, head of the property department at law firm Lewis Hymanson Small speaks to Estates Review about his objection to the government’s imposition of tax on empty commercial properties and explains why it could be detrimental to the UK economy
Numerous reports over the past few months have revealed Britain’s towns and city centres could soon be scarred with unsightly “bomb sites” as a result of the introduction of empty tax rates. The controversial tax on empty properties was introduced by the government in May 2008. Until then, commercial property owners didn’t have to pay any business rates for the first three months buildings were empty. Beyond this, 50 percent of the normal rate had to be paid on all commercial property. Under the new rules there is no charge for the first three months they are empty. However, after that time full rates have to be paid even if a tenant has not been found.
Unsurprisingly, the government has come under attack for ignoring financial realities in the present climate and has been accused of attempting to ‘plug holes in the nation’s finances with the tax. Reports say the government could claim an additional £3bn in revenue from the tax. Not only is this ‘empty tax’ crippling for both property owners and occupiers faced with bills of hundreds of thousands of pounds, but the worry is it could also shape Britain’s commercial landscape for the worse.
Bombsite Britain
The tax introduction has caused a phenomenon dubbed “bombsite Britain”, where many older buildings are reduced to rubble as firms cut development. The big picture could see deprived areas left without regeneration, while others could start to resemble war zones because of the demolition work. Hutley Investments in Bramley, South East England recently demolished a 20,000 sq ft site in Woking which was scheduled for redevelopment over the next two or three years. The complex had housed a recruitment firm and a market research consultancy. Hutley Investments decided to pay £145,000 for the demolition and forgo a possible £200,000-a-year-rent rather than pay the higher rates of £267,000 a year plus expected one-off refurbishment costs of £350,000.
In another case, Swindon Council revealed it will crush a factory on a 14-acre site at North Star Avenue in the town to avoid paying £110,000 in tax. The demolition will cost £430,000. This is a repeat of the situation in the 1970s when an empty rate was introduced in the form of penal rating surcharge. The move didn’t create new lettings and instead led to the deliberate vandalising of properties to avoid rate liability. It was a failed policy then and it’s a failed policy now.
Hardship tax
Combined with the credit crunch, the tax could kill off new development and reduce the supply of affordable business space, because it is too costly for owners to maintain affordable offices. The government has argued that the tax increases the supply of property and therefore makes it cheaper. It has however ignored the fact a landlord earns nothing if a property is empty and that taxing empty space will not fill it.
Empty rate tax is effectively a tax on hardship. Normally a business pays taxes on profits, but with empty rates they are charging somebody for public services, which they are not getting.
The tax could have a dramatic aesthetic impact on England’s landscape but the real issue is the struggle businesses are facing trying to pay the tax. I’ve advised many small businesses owners in the past few months who are unsure of what the future will hold. With owners faced with the choice of demolition or bankruptcy, the outcome is inevitable but before doing anything hasty, they should consult with professional advisors.
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Article info
14/10/2008
History repeats itself for bombsite Britain
Mike Hymanson, head of the property department at law firm Lewis Hymanson Small speaks to Estates Review about his objection to the government’s imposition of tax on empty commercial properties and explains why it could be detrimental to the UK economy
Numerous reports over the past few months have revealed Britain’s towns and city centres could soon be scarred with unsightly “bomb sites” as a result of the introduction of empty tax rates. The controversial tax on empty properties was introduced by the government in May 2008. Until then, commercial property owners didn’t have to pay any business rates for the first three months buildings were empty. Beyond this, 50 percent of the normal rate had to be paid on all commercial property. Under the new rules there is no charge for the first three months they are empty. However, after that time full rates have to be paid even if a tenant has not been found.
Unsurprisingly, the government has come under attack for ignoring financial realities in the present climate and has been accused of attempting to ‘plug holes in the nation’s finances with the tax. Reports say the government could claim an additional £3bn in revenue from the tax. Not only is this ‘empty tax’ crippling for both property owners and occupiers faced with bills of hundreds of thousands of pounds, but the worry is it could also shape Britain’s commercial landscape for the worse.
Bombsite Britain
The tax introduction has caused a phenomenon dubbed “bombsite Britain”, where many older buildings are reduced to rubble as firms cut development. The big picture could see deprived areas left without regeneration, while others could start to resemble war zones because of the demolition work. Hutley Investments in Bramley, South East England recently demolished a 20,000 sq ft site in Woking which was scheduled for redevelopment over the next two or three years. The complex had housed a recruitment firm and a market research consultancy. Hutley Investments decided to pay £145,000 for the demolition and forgo a possible £200,000-a-year-rent rather than pay the higher rates of £267,000 a year plus expected one-off refurbishment costs of £350,000.
In another case, Swindon Council revealed it will crush a factory on a 14-acre site at North Star Avenue in the town to avoid paying £110,000 in tax. The demolition will cost £430,000. This is a repeat of the situation in the 1970s when an empty rate was introduced in the form of penal rating surcharge. The move didn’t create new lettings and instead led to the deliberate vandalising of properties to avoid rate liability. It was a failed policy then and it’s a failed policy now.
Hardship tax
Combined with the credit crunch, the tax could kill off new development and reduce the supply of affordable business space, because it is too costly for owners to maintain affordable offices. The government has argued that the tax increases the supply of property and therefore makes it cheaper. It has however ignored the fact a landlord earns nothing if a property is empty and that taxing empty space will not fill it.
Empty rate tax is effectively a tax on hardship. Normally a business pays taxes on profits, but with empty rates they are charging somebody for public services, which they are not getting.
The tax could have a dramatic aesthetic impact on England’s landscape but the real issue is the struggle businesses are facing trying to pay the tax. I’ve advised many small businesses owners in the past few months who are unsure of what the future will hold. With owners faced with the choice of demolition or bankruptcy, the outcome is inevitable but before doing anything hasty, they should consult with professional advisors.
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