David Prosser's Outlook: Another tax policy reducedto rubble
Wednesday 13 August 2008
So it appears landlords have begun to call the Government's bluff. Swingeing cutbacks to the reliefs on business rates available to owners of empty commercial and industrial buildings, introduced earlier this year, are expected to raise £950m in additional tax revenues by next April. It is hardly surprising that, as we report today, landlords are seeking to avoid the extra charges.
In many cases, the tax avoidance strategy takes the rather basic – but nonetheless effective – form of simple demolition. Landlords who can't find tenants for buildings ranging from pubs to factories are knocking them down rather than pay the extra business rates now due on such properties.
Back in March, John Healey, the Government minister with responsibility for local government, promised to come down like a tonne of bricks (pardon the simile) on landlords demolishing their properties to save tax. Or, for that matter, on landlords leaving unfinished buildings in a semi-derelict state so as to avoid them figuring for tax purposes. After all, Mr Healey pointed out, the £950m of revenue on its way to the Treasury was simply a handy by-product of a government policy on empty buildings tax that was really meant to be a regeneration initiative.
The rather tortured logic to this argument is that landlords – particularly the UK's large property companies – have been deliberately leaving buildings unlet in order to restrict supply and force up rents. High streets, towns and cities up and down the country are thus full of uncared-for, empty buildings that look grim and act as a brake on local economies.
Mr Healey's warnings, though, seem to have fallen on deaf ears. Landlords have simply demolished their buildings anyway. What, then, can Mr Healey do to make good on his promise of zero tolerance of a strategy he has previously described as "commercial vandalism"?
One option is to dust off local government finance legislation enacted in the eighties that allows councils to assume that for tax purposes, a building was completed three months after construction began even if it has not been. But while this would hit landlords leaving buildings unfinished to avoid tax, it doesn't stop demolition.
It's likely that yet more anti-avoidance material will be unveiled in October's pre-Budget report, but it's difficult to see how rules could be framed to prevent landlords demolishing buildings purely for tax purposes. And the property sector will rightly point out that the economic climate has worsened markedly since these taxes were first announced.
A Treasury climbdown is unlikely. But in the absence of a U-turn, it now seems that higher empty buildings taxes will indeed result in there being fewer empty buildings around the country – but only because there'll be greater numbers of piles of rubble, rather than an increase in properties let out. That extra £950m in tax may look ambitious too.
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