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Scottish businesses set for tax increase of up to 25% following government review of rates

Rate Poundage will increase for the first time in the modern rating era

Scotland 18 December 2015 – Property consultancy JLL has predicted that businesses in Scotland's three biggest cities could face tax increases of up to 25% following the UK Government's revaluation of business rates set to come in after 2017.

Business rates are to be revised in 2017, based on how rents stood in 2015. The current framework, introduced in 2010, is based on 2008 rental levels when rents were at high levels after several years of sustained commercial growth. Given that average rental values have struggled since the start of the 2008 recession, the UK Government has altered the formula by which rates are calculated.

In a new report, 2017 A Brave New World? JLL predicts that the Uniform Business Rate (UBR), the figure multiplied by rental value to calculate tax owed, will rise to 53.3p in the £ across the UK for most prime properties. Currently the rate poundage in Scotland for 2015/16 is 49.3p in the £ for large businesses and 48.0p in the £ for smaller organisations.

Whilst the new formula may result in little change to tax liabilities for many businesses throughout Scotland, those based in Scotland's three biggest cities are likely to see tax liabilities increase following the Revaluation in 2017. Due to average rental values in Aberdeen, Edinburgh and Glasgow increasing between 2008 and 2015, JLL predicts that tax liabilities could increase by 25% (Aberdeen), 15% (Edinburgh) and 10% (Glasgow).

It is likely that ratepayers of older properties in Glasgow will see a decrease in liability, whilst prime sectors are likely to see an increase of around 5-10%. Meanwhile, prime offices rental values in Edinburgh have increased since 2008 and may see growth of around 10-15% in rate liability.

Under current legislation, the amount collected by the UK Government from business rates is kept constant in real terms, regardless of what is happening to the economy. However, JLL is calling for radical changes to the business rates system, including the removal of downward transitional arrangements where appropriate, the use of Consumer Price Index (CPI) rather than Retail Price Index (RPI) as an index, more frequent Revaluations, a fixed UBR following a revaluation and a modernisation of the collection process.

David Burke, Director of Rating at JLL said: "At present, business rates are based on rental values as at 1 April 2008 when rents still were at high levels after several years of sustained growth. From 2017, the revalued rates could result in double digit tax liabilities increases, by as much as 25% for Aberdeen. Whether future uncertainty over the price of oil could jeopardise demand for office and industrial space is yet to be seen, and might create additional imbalance for ratepayers in the city after 2017. The fundamental problem with the current rating system is that it's based on a snapshot in time, and fails to take into account changing economic dynamics. We believe that there needs to be an overhaul of the ratings system, making a number of changes which will result in a more balanced formula which more accurately reflects property values and rents at any given time."

The report, "2017 A Brave New World?" is available to download here: