If your commercial property is vacant, or soon to be, business rates might be keeping you up at night. Since 2008, when the rates relief period was reduced to 3 months for non-industrial properties and 6 months for industrial spaces like warehouses, vacant properties have become the albatross around many a landlord’s neck.
Do You Have to Pay Business Rates on Vacant Property?
In most cases, yes. When your property is occupied, responsibility for paying business rates falls to the occupants, whether you occupy the premises yourself, or lease to tenants. When you or your tenants vacate, you get a short window of business rates relief in which to sell, or find new tenants. Full business rates will kick in after 3 months or 6 months, depending on whether your property was used for industrial purposes. Letting or selling property at short notice can be a tall order in today’s economic climate. If you fail to find tenants, and you either don’t want to sell or can’t find a buyer, you not only lose out on revenue for the property, but incur eye-watering business rates as well. (Not to mention other vacant property costs, like security, maintenance, cleaning and other essential expenses.)
There are some cases in which you won’t have to pay business rates on your empty property, so before you start worrying about the financial burden of leaving your property vacant, it’s worth checking the list below to see if any exemptions apply.
Business Rate Exempt Properties
You may not have to pay business rates on unoccupied property if it falls into one of several business rate exempt categories. If your property is exempt from business rates when it is occupied, then you will not have to pay business rates when it is vacant. (So if you or your tenants are currently paying business rates on your property, that’s a sure sign that your property does not fall into one of these categories.)
Firstly, if your land is used for agriculture (including fish farming), you won’t pay business rates on the buildings on that property. No business rates are payable for church halls or any property registered for religious purposes. Same goes if your property is used for the welfare of the disabled.
Bear in mind that these exemptions are only applicable in England. If you’re in Scotland or Wales, expect different regulations.
Empty Business Rates Exempt Properties
Even if your property is not normally exempt from business rates, there are some circumstances in which you won’t have to pay business rates on the unoccupied property.
Rateable Value of £2,900 or Less
Firstly, if your property has a rateable value of less than £2,900, you won’t have to pay business rates even after the 3-6 month relief window has closed. (Gone are the days when the threshold for this exemption was £18,000!) If your property qualifies for this exemption, you won’t have to fret about business rates until your property is occupied again.
Some buildings come under the umbrella of ‘Zero Rated Properties’. For example, if your property is a listed building, you’re exempt from business rates for the period that the building stands empty. You will also be exempt if you’re a registered charity and you can show that when the property is occupied, it will once again be used for charitable purposes. A similar rule applies to buildings owned by community amateur sports clubs—i.e. if the building is being reserved for future sporting activities, you don’t have to pay business rates while it is vacant.
Other Conditions that Qualify Vacant Properties For Business Rates Exemptions
If you have been declared bankrupt, or your business has gone into administration, then we’re pleased to tell you that you won’t have to worry about vacant property business rates on top of your other woes. Phew! (It’s important to note that business rates will apply until you cease trading in the property.) The vacant property will also be exempt from business rates if you have been granted possession under a contract or in the capacity of a trustee. You also won’t have to pay business rates on the vacant property if it’s not finished or in an economically irreparable state.
Why Do You Have to Pay Business Rates on Vacant Property?
You may think that having to shell out for 100% business rates on vacant property is prohibitively expensive when you’re not earning any income on that property. And you would be right: the high business rates on vacant property are designed to prohibit landlords from letting their property stand vacant for extended periods. This is partly to stimulate market competition, and partly to meet the demand for commercial properties that is currently outstripping the rate of new commercial property development. So in short, though your property may stand vacant for sound reasons, the government does not want to hear about it. If you want to avoid business rates on empty properties, you will need to navigate your own path.
But never fear. Landlords in the know have long been taking advantage of various ways to avoid paying business rates on unoccupied buildings.
Here are our Top Tips on how to Avoid Business Rates on Vacant Properties
Install Short Term Tenants
If you can find trustworthy tenants to live at the property for a minimum of six weeks, you may not have to pay business rates on your vacant property. If you have a tenant in situ, they will have to pay the business rates. Once they move out, your window of business rates relief starts again—so that’s 3 months or 6 months, depending on your property type. You can, in principle, repeat this process continually, avoiding business rates with short term leases of at least six weeks. In this case, a reverse payable premium can be useful to reduce tenant liability.
In practice, however, making use of short term tenancies to circumvent business rates is not that easy. There are several important stipulations that must be met in order to avoid business rates on your vacant property. You must be able to demonstrate that there is some degree of permanence to the arrangement, and that it benefits the tenant. It can also be hard to find suitable tenants. That’s where property guardianship comes in. Blue Door Property Guardians specialises in placing responsible tenants in your property, for however long the arrangement works for you. Check out our services for more info.
Occupy Your Property Yourself
If you’re able to act as a tenant yourself for the minimum period of six weeks, you could enjoy the same benefit as above. After six weeks, once you leave the property, your rates exemption period rolls over, so you avoid those business rates bills. You can do this repeatedly, but bear in mind that just like installing tenants, you must demonstrate that it is beneficial to you to reside at the property for that period.
Let the Property to a Charity
Charities pay only 20% business rates, so if you can rent your premises to a charitable organisation, and arrange to cover the required 20% through charitable contributions, you can save 80% on business rates for that property. This is a win-win, as you save a significant amount of money, and the charity benefits from a premises to operate from. Of course, 20% is more than 0%, so if your preference is to pay no business rates while you’re not using the property, Property Guardianship may be your best bet.
You don’t have to pay business rates on a property that offers no benefit to an occupier. One reliable way to ensure that a building is not beneficial to an occupier is to demolish it. Don’t do this without sound consideration, though. A cost-benefit analysis is a must!
Whether you choose the Property Guardianship route or something more drastic, you do have options if you’d prefer to avoid paying business rates on your vacant property.