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We commented earlier in these pages about a government consultation in respect of the rate used to value specialist properties for which there is no general market. For most properties rental values at April 2015, which is the valuation date for rating purposes, 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”. Following its consultation, the Department for Communities and Local Government has announced that these rates will be reduced to 4.4% for most properties and to 2.6% for educational, healthcare and defence properties.
Whilst this may sound like an announcement that is of narrow technical interest only, it is actually 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. The reduction in the decapitalisation rate from 5% to 4.4% represents, other things being equal, an effective 12% reduction in the rating assessments of properties valued in this way. For educational, healthcare and defence properties the reduction in the decapitalisation rate from 3.3% to 2.6% will, other things being equal, represent a reduction of more than 21%.
The Uniform Business Rate multiplier for 2017 will need to be increased accordingly, above that which would otherwise have been the case, so as to preserve the total tax yield in the face of these changes and that will mean higher rates bills for all ratepayers. Hence we say that an announcement that may appear to be of interest to rating “anoraks” only is something that can affect all taxpayers.
The Welsh Assembly Government had earlier announced a decapitalisation rate for 2017 of 3.8%, with a lower rate for educational, healthcare and defence properties of 2.1%. The current figures in Wales are 4.5% and 3.8% respectively. So their will, other things being equal, also be reductions in rateable value for properties in Wales that are valued in this way. This will affect the setting of the business rates multiplier in Wales in a similar way to the changes in England.
There has been an equivalent consultation in Scotland, but no rates have yet been announced there. .
