The Barclay Review of non-domestic rates in Scotland published its report in 2017 making a series of recommendations to the Scottish Government on changes that should be made to the business rates system. The Scottish Government accepted most of the recommendations and in 2018 published a consultation on how best to implement the proposed changes (see a summary of the questions below).
The Scottish Government published a summary of responses document in February 2019 as well as the Barclay Implementation Advisory Group’s Final Report. The Scottish Government aims to introduce the Non Domestic Rates (Scotland) Bill to the Scottish Parliament before Easter Recess.
The Bill will make provision for changes to charity rate relief – mainstream independent schools will no longer be eligible to apply for mandatory charitable rate relief, independent special schools and specialist independent music schools will not be affected by this change; by way of an enabling power for the Scottish Ministers to issue statutory guidance to local authorities regarding the granting of sports club relief; and the closing down of several tax avoidance tactics identified by the Barclay Review relating to non-domestic reliefs.
The proposal to impose a 10% supplementary charge on property that has been vacant for over 5 years will not be taken forward. The proposal to restrict empty property relief for listed buildings to 2 years will be taken forward but the threshold will be 5 years and this can be dealt with by secondary legislation.
An impact report from the Scottish independent consultancy BiGGAR Economics has found that Edinburgh’s private schools – which educate 25 per cent of the city’s pupils – may face a £9 million increase in costs in consequence of the Scottish Government partial removal of their business rates relief, combined with a rise in teachers’ pay and the cost of pensions contributions
Overview of the consultation questions and summary of responses
While the Scottish Government declined the recommendation to remove charity relief for certain university properties and for ALEOs, it confirmed that it will remove charity relief for most independent schools from April 2020. However, the Scottish Government has committed that schools for children and young people with additional support needs that are in receipt of disabled persons relief or charitable relief will be able to retain that relief. The Scottish Government has also recognised that there may be a small number of independent schools with exceptional circumstances, such as specialist music schools that require further consideration and requests feedback on this point (see Q22).
The summary of responses notes that: “the Independent Education Sector commented that the Barclay Review unfairly targeted Independent Schools as the suggestion of exempting certain types of Independent Schools would unfairly benefit some schools whilst leaving others struggling. The Scottish Charity Regulator commented that the “creation of a ‘two-tier’ charity sector within a ‘single-tier’ regulatory regime could be damaging to the public’s trust and confidence in both the sector and charity law.” They also stated that the proposed change to remove non-domestic rates relief from certain Independent Schools may devalue “charity status of certain groups of charities”.
Another recommendation by the Barclay Review was to limit relief to economically active properties (ie those in active occupation). This change would impact on empty properties either previously occupied by charities which receive charity relief (not empty property relief) or empty properties that claim the more generous SBBS instead of empty property relief. The consultation document asks how active occupation should be defined (Q23) noting that the definition must not give rise to avoidance. It is suggested that evidence could include a combination of factors including: floor space used, accessibility to the public and/ or council, demonstration of accounts for a business in operation at the property; or for the General Anti Avoidance Rule to be utilised in cases where a property is not in active use, but claims a relief other than empty property relief.
The summary of responses document notes that “the proposal to remove charity relief from properties which were no longer occupied by a charity was met with agreement by a number of respondents, including local authorities and Chartered Surveyors”. For example, Argyll and Bute Council noted “that charitable relief should only be given to properties which are occupied by the charity. Currently there are situations where charities own properties and have limited incentives to ensure they are well utilised”.
However, the Royal Blind School highlighted potential scenarios in which charity relief should still be applicable even when the charity is not actively using the building. These included “changes to school rolls, the physical needs of their service users, and moving services out of buildings which are no longer fit for purpose”. In these instances, charity relief should still apply on the property. Therefore, the Royal Blind argue: “that a definition of “active property” which did not give any consideration to such scenarios and processes could also have a detrimental impact on charities providing vital educational benefit to disabled children and young people”.
Similarly, the Scottish Business Ratepayers Group stated that “not all properties that are vacant are economically active”. Therefore, if the property is not capable of being let for reasons outwith the ratepayers’ control then it is not fair to further penalise them with the removal of rates relief. This view was supported by a number of Businesses, Representative Bodies and Chartered Surveyors.”
A further recommendation was that in order to encourage empty property back into economic use, from 2020, 100% relief for empty listed buildings should be restricted to a maximum of 2 years, and thereafter reduced to 10% relief in line with other types of empty property. The consultation asks for views on whether Councils should have discretion in the application of this measure for properties, so that local circumstances can be accounted for (Q24)?
The summary of responses document notes: “Across all respondent categories there was a strong consensus that Councils should have discretion over the application of this relief. It was noted that this would allow “local circumstances to be considered” in the application of the relief “. It was noted that listed buildings “can be difficult to lease and planning processes in these cases can be complex”. Thus, it would be unfair to penalise owners or landlords of these properties”.
Additionally: “Any changes to existing relief could distort markets, leading to unequal beneficiaries of policy change. For example, some listed buildings won’t ever be able to be brought back into active use”
The Independent Education Sector noted the potential for the relief to unfairly financially burden some schools.