The Department of Finance currently has a consultation open on proposed changes to business rates in Northern Ireland which includes two proposals, increased rates on vacant buildings, and delaying rates increases following improvement works. Both proposals will affect commercial buildings only. 

The proposal on vacant buildings is to gradually increase rate liability over several years from the current level of 50% to 75% and eventually to 100%.

The policy proposal on delaying rates increases after improvement works has been named the Business Growth Accelerator, and is effectively a version of a policy already adopted in Scotland. 

The clear objective for both these initiatives is to encourage investment and reduce vacancy, particularly in our high streets, towns and villages. Whilst this is an admirable aim, it does raise the question of whether changes in rating policy alone can solve deep seated vacancy issues in the property market. 

The conversation around taxing vacant property has been active for decades. Historically vacant commercial property incurred zero rates liability in Northern Ireland. This changed in 2004 when rates on vacant commercial property were levied at 50% with a similar objective - to encourage vacant property being brought back into use. Whether this objective was met is open to debate, and due to the complexity of issues around vacancy, is unlikely to ever to be proven. 

Certainly, the level of vacancy currently in the commercial property market would indicate the 2004 policy was not an easy fix. 

Many will debate how doubling the tax on vacant property will generate investment and occupancy in an economy where property costs are under the microscope like never before, and where bricks and mortar have become less essential for many business models. The theory is that increasing tax will act as a penalty on vacancy and encourage owners to find solutions by redevelopment, investment or occupancy.  

When considering vacant property in need of redevelopment, it is important to distinguish between vacant and derelict property. Vacant property is defined as being unoccupied, unfurnished and not used for storage. Derelict property is defined as being not capable of commanding a rent in its existing state. Most, if not all, development sites contain derelict properties rather than vacant property, and developers will likely have had these properties removed from the Valuation List and therefore will not be paying rates. The current policy proposals will not affect most development sites. Rather the policy impacts vacant property which is capable of occupation in its current state, such as many vacant retail units. 

Increasing taxes on vacant property is unlikely to be universally popular when cost pressures are already a concern for all businesses. However, the policy might receive a better reception if there was clarity on where and how the increased revenue is invested, and specifically if there was direct investment in solving the issues at the core of the vacancy issue. 

The causes of commercial property vacancy are complex and varied and have developed over a long period of time. Economic, political and demographic changes, global events, such as the pandemic, together with changes in work practices and shopping habits have all combined to alter occupation demand. Over time, the environment has changed so much that a portion of the commercial property stock in Northern Ireland no longer matches the requirements of business. 

The taxation of commercial property is an important part of this debate however the impact of rates changes in isolation are unlikely to get to the core of the issues causing vacancy, including planning issues and infrastructure constraints. The solution lies in a joint approach between both the public sector, at multiple levels, and private sector, with the introduction of flexible policies that will allow the commercial property to adjust to the demands of the modern market.