Business rates relief for improved properties

Key considerations from the Non-Domestic Rating Act 2023

Section 1 of the Non-Domestic Rating Act 2023, which received Royal Assent late last year, created a new mandatory business rates relief to support businesses making improvements to properties they occupy. This relief comes as part of a broader Government strategy aimed at encouraging investment and fostering economic growth. From 1st April 2024, businesses that have made qualifying improvements and remained in occupation will benefit from 100% relief from higher business rate bills for a duration of 12 months. The scheme will run until 1st April 2029.

However, as we approach the effective date of 1st April 2024 for this new relief, it is imperative to adhere to the qualifying period, which is 12 months beginning with the day on which the qualifying works are completed. With this in mind, any qualifying works currently being undertaken – unless business critical – shouldn’t be completed until on/or after 1st April 2024 to ensure the application of this new relief.

To qualify for this new business rates relief, the following conditions must be met:

• The works should increase the area of any building in or on the hereditament, or otherwise improve the physical state of the hereditament or add to it rateable plant and machinery

• The same ratepayer has been in occupation of the hereditament on each day since the qualifying works commenced

• Illustrative examples of improvements resulting in an increase in rateable value which may meet the qualifying works condition include:

  • The addition of insulation or new lining to a previously uninsulated industrial property

  • A physical extension to a property

  • The removal of a structural wall within a shop, so that the area previously behind the wall is then used for retail instead of storage

  • The addition of a structural mezzanine retail area in a retail warehouse

It’s important to note that neither a newly constructed hereditament nor a refurbished hereditament (which had left the rating list during the works) will qualify. A change of use alone or the addition of land will also not qualify.

As is common with many business rates reliefs, the detail of when a property is eligible and how the relief is calculated will be set out in regulations. Draft regulations setting out detailed proposals for the relief were consulted on between June and August 2023 with the Government laying before Parliament The Non-Domestic Rating (Improvement Relief) (England) Regulations 2023 on 14th December 2023.

Separate regulations apply to England and Wales as business rates policy is fully devolved to Wales. Whilst the associated parts of the Non-Domestic Rating Bill also apply to Wales, the Welsh Government have made their own separate regulation for this relief. The Non-Domestic Rating (Improvement Relief) (Wales) Regulations 2023 were laid before the Welsh Parliament on 13th December 2023.

Both sets of regulations will come effect on 1st April 2024 – the day in which the relief is due to commence. Entirely different legislation applies in Scotland and Northern Ireland.

The VOA will determine whether the qualifying works condition is met, as well as the effect of any improvements to a property on its rateable value. Once the VOA is satisfied that the improvements meet the definition of qualifying works, it will issue a certificate confirming the increase in rateable value that is attributable to the works.

Billing authorities are then responsible for checking whether the conditions to apply for the relief are met. Those conditions are that:

• A certificate has been issued by the VOA that has not been withdrawn or ceased to have effect, and

• The same person has been the occupier on each day since the day the qualifying improvement works commenced

The regulations also provide that the continuous occupation by the same person applies to predecessor hereditaments in a case where there has been a split or merger since the works commenced. It also means that a hereditament which falls vacant will lose any entitlement to improvement relief. That entitlement cannot be restored in respect of the same works if subsequently reoccupied – even if by the same person.