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The next rating revaluation will take effect, as we have reported elsewhere in these pages, from 1 April 2017 and will be based on values at 1 April 2015. For most types of property there will be evidence of rental values at April 2015 that will shape their new rateable values in 2017. However, there are classes of property for which there is little or no evidence of rents and some of these properties are valued by reference to their replacement cost – a method of valuation known as the “contractor’s basis”. Many large properties are valued in this way, including industrial properties, hospitals, universities, and defence properties such as military airfields.
Because rateable values are intended to represent annual values, a replacement cost derived under the contractor’s basis (which will be a capital value) needs to be turned into an annual equivalent. The means of doing this is known as the “decapitalisation rate” and it is the percentage of the capital value which is taken as the annual equivalent. Since 1990 this decapitalisation rate has been prescribed by government, and it is currently 5% for most properties but prescribed at a reduced rate of 3.33% for “educational, healthcare, and defence properties”. The Department for Communities and Local Government has published a consultation paper seeking views on whether these decapitalisation rates should continue to be prescribed for the 2017 revaluation and, if prescription does continue, whether there should be more than one prescribed rate, and what those rates should be.
All this may sound like a debate for rating nerds only, but it is a matter of significance to all ratepayers. The properties that are valued in this way represent about 15% of all rateable values appearing in local rating lists and about £3 billion per annum of rate liabilities. If, for example, the decapitalisation rate was reduced from 5% to 4% all properties valued in this way would see an effective 20% reduction in their rating assessments. The Uniform Business Rate multiplier would need to be increased accordingly so as to preserve the total tax yield in the face of such a change and that would mean higher rates bills for all ratepayers. Hence we say that a consultation that may appear to be of interest to rating “anoraks” only is something that can affect all taxpayers.
The consultation closes on 9 November 2015. There is an equivalent consultation in Scotland that closes at a slightly later date. Those ratepayers who occupy properties of the type that are valued in this way will want to respond to question whether a rate of 5% is still appropriate in current circumstances where interest rates have been at very low levels for an extended period since the last rating revaluation. Those ratepayers who are not directly affected may well also take an interest in this consultation for the reasons we have set out.
