PROPOSED REVALUATION NECESSARY FOR MORE EQUITABLE RATES REDISTRIBUTION
23 January 2013Non-domestic property occupiers across Northern Ireland should note that a revaluation for rating purposes of all non-domestic properties locally will take effect on 1 April 2015. Its purpose is to rebalance rates liabilities and will apply to some 72,000 properties, however, there will be losers as well as winners.
A basic requirement of any tax is that it is fair: the distribution of business rates liability in Northern Ireland is far from fair. Rates liability is based on the rateable value or Net Annual Value of business premises intended rental values at a particular point in time. The last revaluation in Northern Ireland took effect on 1 April 2003 and was based on rental values at 1 April 2001. In the interim there has been a considerable shift in the fortunes of some locations and property types relative to others. Regular revaluations are needed to take account of these movements in value in order to redistribute rates burdens equitably.
Without regular revaluations, the relationship between rental value and rates liability becomes ever more tenuous resulting in some occupiers within lower value locations paying too much and effectively subsidising businesses in higher value locations. In 2009, the Finance Minister, Sammy Wilson, postponed a revaluation which had been proposed for April 2010 based on rental values at April 2008. Allegedly, the severe economic downturn destabilising the commercial property market would have precluded the compilation of a fair, defensible list. Of course, economic conditions deteriorated more than anticipated resulting in rental values collapsing in almost every property sector and location.
Ironically, the rates burden is one of the reasons why rents have fallen so dramatically, particularly in Belfast city centre. When the 2003 list was produced, Donegall Place, home to well known retailers including Marks & Spencer, Boots and Next, was the most valuable floor space in Northern Ireland. Consequently, it was allotted the highest valuations. However, retailers have a budget for total occupational costs, and with rates accounting for most of this, little remains for rent. As a result, peak to current rental levels in Donegall Place have dropped by as much as 80% and some landlords are allowing retailers to occupy premises rent-free just to avoid incurring vacant rates liability. It is evident that the current distribution of rates liability has distorted the property market, which cannot prevail. Clearly, there are knock-on effects relating to the wider property market calling the credibility of rates into question.
The proposed revaluation will be the most challenging ever performed by Land & Property Services. The property market has never been more unstable. In many cases, rental evidence will be limited and often distorted by incentives such as rent-free periods, turnover top-up rents, etc. Establishing reliable rental tones on which to base valuations will be difficult, however, deferring the revaluation is simply not an option. In fairness, Land & Property Services and the Finance Minister have given public assurances that the revaluation will not be deferred so businesses should start to plan for potentially significant shifts in liability post April 2015.
Given the almost universal downward pressure on rents in recent years, it is likely that many rateable valuations will reduce. However, it would be wrong to assume that as valuations fall, rates liability will also reduce. Non domestic rates currently contribute around £550 million per annum towards providing services including roads, hospitals, schools and local services provided by district councils. That revenue stream will need to continue meaning that as rateable values fall, the rate in the pound multiplier will increase to compensate. Whilst it is too early to make detailed predictions, one of the biggest shifts in liability will undoubtedly be from town/city centre retail to out of town retail and supermarkets. Whilst out of town retailers and landlords will not welcome this, it will be a tonic for our towns/city centres and hopefully help efforts to revive these traditional centres of commerce that have suffered the most in recent years.