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Reaction to UK budget announcement

Mike Flecknoe, a Senior Director in the Rating team at Cushman & Wakefield, says: “The Chancellor’s budget announcement concerning the extension of small business rates relief at 100% for properties up to a rateable value of £12,000 and tapered relief to a rateable value of £15,000 from 2017 will be greatly welcomed by SMEs. It is genuinely helpful for many small businesses across England. Similarly the increase of rateable value threshold to £51,000 where the lower rates multiplier will be applied will be welcomed by everybody. However assuming the Chancellor will want the effects to be fiscally neutral, it will be interesting to see if the small business rate relief premium paid by large businesses will be increased to pay for the giveaway.

“Larger ratepayers will be pleased with the announcement that CPI will be used from 2020 to determine the annual change of rates liability between revaluation – this is something long campaigned for by the likes of CBI.

“Devolution of business rates will be arriving early for Greater London – from April 2017 rather than the expected 2020. This will worry councils outside London, many of whom do not have access to large business rates revenues to pay for their local services. There is still no clarity as to how rural councils will be able to continue to fund services post rates devolution.

“The aim to move to more frequent revaluations – at least every three years – will have a positive impact. It will mean that rates liability will be far more closely linked to the economic performance of business. The business rate billing process is long overdue an overhaul. Moving towards HMRC digital tax accounts will certainly improve the process but why will it take five years. At least ratepayers will be able to pay on-line from April 2017.”

Mark Henderson, a Senior Director in the statutory valuations team at Cushman & Wakefield, says: “The biggest business rates news in today’s budget wasn’t mentioned in the chancellor’s speech but it could lead to big changes for ratepayers across the country. The government has confirmed an intention to move to more regular revaluations, at least one every three years, with further information expected to be published later this month. This could be the first step in fixing what is seen as one of the biggest problems with the current system, being that it normally doesn’t account for changes in market conditions for five years. Shorter revaluations will re-distribute the burden of the tax more regularly, ensuring a fairer distribution amongst ratepayers, something that businesses across the country will welcome. The proposed change does raise the question of how the under-resourced Valuation Office Agency will be able to undertake more regular revaluations. The indexation of yearly increases in liability changing from the Retail Price Index to the Consumer Price Index will also be widely welcomed.

“There is welcome news for small businesses where companies occupying properties with Rateable Values up to £51,000 will now benefit from having their liabilities calculated on the small business rates multiplier which will lead to savings up to £663 per property next year. In addition to this the chancellor has announced that small business rates relief will now be eligible for rateable values up to £15,000 permanently which will also be received well by small businesses offering certainty where previously the chancellor only increased the cap to £12,000 and for one year at a time.

“Importantly businesses need to know what proposals the government has for transitional arrangements that limit liability changes year on year, so that they can accurately budget this considerable cost in future years, further uncertainty will hamper businesses across the country with further announcements unlikely until the Autumn Statement at the end of the year.

“Of interest to occupiers in London is the news that the GLA will have 100% retention of business rates income three years earlier than planned starting from 1st April 2017. The devil will be in the detail and it will be interesting to see how this is applied and how this will affect other local authorities.”

David Ramsdale, Residential Research Analyst at Cushman & Wakefield, says: “A disappointing Budget. No new announcements relating to support for Build-to-Rent and PRS despite a recent BPF study finding 80% of MPs back the idea of Build-to-Rent. To rub salt into the wounds, the new SDLT rates on buy-to-let and second homes, having previously intended to exempt large individual and corporate investors, will now include them while CGT has been cut to 20%, but not for residential property. This potentially jeopardises the supply of privately rented homes going forward, both established homes and purpose-built PRS stock, placing greater pressure on rental values, and all this before the scaling back of mortgage interest rate relief from next year. This, from our perspective, will have more of an impact on individual landlords than the SDLT rise, being an annual tax as opposed to a one-off transactional tax. Renters are facing higher rents and fewer properties going forward. We ask the Chancellor, how is this putting the current generation first, yet alone the next generation first?”

Nick Allan, senior director in Cushman & Wakefield’s Investment team, says: “Clearly the overall increase in stamp duty is very disappointing news for the industry, especially for the vast majority of commercial property developers and investors. The industry has always been seen as an easy target by the Treasury, however the implications are less clear and ironically could lead to reduced revenues for central government as liquidity and therefore transactional volumes reduce as a consequence. Practical issues come into play around timings, as the change in tax comes into effect at midnight and many significant transactions are close to exchanging. This could lead to the reopening of discussions between parties over who bears the cost.

“The reality is the industry has had to absorb cost hikes in the past and I am sure it will again. However, these will affect the wider attractiveness of property as an investment commodity as opposed to others sectors such as equities and bonds that pension funds seek to invest in.”

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