The purpose of revaluations is to reallocate liability according to shifts of property rental values. It is not an attempt to raise more taxation revenue. Consequently divisions will always be created with “winners and losers” determined by how individual rateable values change compared to the average.
Revaluations can create significant issues for ratepayers when faced with far higher rateable value increases than average leading to unaffordable rates liability increases. There have been many examples highlighted by the media over the past few weeks due to the forthcoming 2017 Revaluation.
To soften the effects of revaluations some form of transitional arrangements have been in place in England since 1990, providing a softening of any liability increases for ratepayers whose bills would otherwise show a sudden marked increase following a revaluation.
The government consulted on the type of transition system to be implemented for the 2017 Revaluation and restated the need for the arrangements to be self-funding. Consequently the cost of any upward transition relief (for ratepayers whose bills will be increasing), will be funded by ratepayers whose bills should reduce as a result of the revaluation further exasperating divisions between ratepayers.
The proposed upwards transition cap of 42% for higher value properties over £100,000 rateable value has largely caused the vociferous lobbying by business organisations and ratepayers. A 42% increase is unaffordable for many ratepayers providing little if any softening of liability increases. When inflation and the fact that supplements such as Crossrail is excluded from any transition arrangements is reflected, the real increase in rates liability could be as high as almost 50% for some ratepayers. Ratepayers occupying lower value properties are afforded better protection with upwards caps of 12.5% and 5% for medium and low value properties respectively.
However compared to the 2010 Revaluation transition upwards cap of 12.5%, the 2017 transition arrangements appear to penalise many ratepayers.
The ratepayers most penalised are those occupying higher value properties whose 2017 Rateable Value is higher than £100,000 and has fallen by more than 18%. In order to ensure the transition arrangements are self-funding, a downward transition penalty (for ratepayers whose bills will be falling) will be in place limiting any reduction in rates liability to just 4.1% or only 2.1% after inflation. With similar downward transition caps in subsequent years, ratepayers whose rateable value has fallen by more than 18% will incur a transition penalty each year until 2021/2022.
In Wales, transition is limited to the very few ratepayers who, as a result of their new 2017 Rateable Value increasing over the key threshold, will no longer qualify for small business rates relief.
Meanwhile in Scotland, the Finance Secretary Derek Mackay announced on 21 February a 12.5% cap on rates liability increases for the hospitality sector and offices in Aberdeen and Aberdeenshire.