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apc spring 2024 > Local Taxation > Flashcards

Local Taxation Flashcards

1
Q

What is Non-Domestic Rating?

A

It is one of the oldest taxing systems in the UK, where it is a tax on occupation of land including non domestic property buildings

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2
Q

What are some of the key differences between Council Tax and Non Domestic Rating?

A
  1. Council Tax is for domestic properties where as Non-Domestic Rating is for non-domestic properties
  2. Council Tax is based on capital values where as Non-Domestic Rating is based on rental values
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3
Q

What is the difference between Non Domestic Rates and Business Rates?

A

Nothing. They are the same thing and it is a colloquialism.

Business Rates is the term used the most to describe Non Domestic Rates, even by the government.

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4
Q

Does a non-domestic property have to be used as a business for it to be liable for non-domestic rates?

A

No. This is again a common confusion caused by the term business rates.

Rates are payable for properties which are neither domestic or exempt from non-domestic rating, and there is no requirement for a business to be run for it to be assessed for rates either

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5
Q

Has the term “Business Rates” ever been used within statute?

A

Yes, with the “Business Rates Supplement Act 2009”.

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6
Q

Can you tell me briefly about the “Business Rates Supplement Act 2009” about?

A

It was with regard to an additional levy supplement on the national non domestic rate in London to assist with the funding of the London Crossrail scheme.

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7
Q

What was the first piece of legislation to do with Non-Domestic Rating?

A

Poor Relief Act 1601

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8
Q

What was the second major piece of legislation to do with Non-Domestic Rating?

A

General Rate Act 1968

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9
Q

What is the key piece of legislation for Non-Domestic Rating today?

A

Local Government Finance Act 1988

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10
Q

What are the three key approaches to property taxation?

A
  1. Tax occupiers on the rental value of their property (UK, Ireland, Italy, France and Belgium)
  2. Tax owners on the capital or selling value of their property (Czech Republic, Denmark, Austria and Latvia)
  3. Tax owners on the value of the land only, either as bare land or with infrastructure present
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11
Q

Which European country does not have a method of property taxation?

A

Malta

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12
Q

Why is property taxation recommended by the International Monetary Fund and World Bank as a method of raising tax?

A

It is reliable. You can’t hide properties as easily as you can with Income Tax or VAT.

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13
Q

Are properties rateable or the people who occupy them rateable?

A

The people who occupy them, in respect of their occupation.

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14
Q

What is the name used for a rateable property as per legislation?

A

A hereditament.

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15
Q

What is the role of a Valuation Officer?

A

They are responsible for preparing and maintaining Rating Lists

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16
Q

What is the role of a billing authority?

A

The collection of the non-domestic rating tax

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17
Q

What is the purpose of a Revaluation?

A
  1. To maintain the standard by which each hereditament in the country can be measured in relation to every other hereditament.
  2. To reflect new market and economic factors. One hereditament over time may become more valuable than another.
  3. Without a revaluation, the relativities between properties and localities become fixed. It ensures fairness to taxpayers
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18
Q

What is the Non-Domestic Rate Multiplier or Uniform Business Rate?

A

A figure sent by central government to allow uniformity/consistency in the amount of rates paid by occupiers.

Previously it was set by local governments only and this was considered unfair, therefore the UBR was brought in.

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19
Q

How do central government typically assess what the UBR should be?

A

It is normally based so as not to exceed the rate of inflation

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20
Q

What is the current UBR?

A

54.6p (0.546) for properties with a Rateable Value above £51,000

49.9p (0.499) for properties with a Rateable Value below £51,000

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21
Q

Is the UBR the same across England?

A

No, it is different in the City of London.

A Business Rate Supplement can be applied in London, but is typically only done by the Greater London Authorities to help fund Crossrail.

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22
Q

Is the UBR the same in England and Wales?

A

No

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23
Q

What is the purpose of transitional relief/arrangements?

A

Historically it is a system where any Non-Domestic Rating increases or decreases were phased in slowly.

For the 2023 Revaluation this was changed where only increases were phased in slowly, and any decreases were given immediately.

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24
Q

Who is the Rateable Occupier?

A

The person(s) responsible for paying the non-domestic rating tax

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25
Q

What are the 4 key ingredients/tenets to rateable occupation?

A
  1. Actual occupation
  2. Beneficial occupation
  3. Exclusive occupation
  4. Not too transient occupation
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26
Q

Can there be rateable occupation if any of the 4 ingredients/tenets for rateability are not met?

A

No, all 4 must be satisfied for there to be rateable occupation

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27
Q

What is the Case Law that determined the 4 key ingredients/tenets of rateable occupation?

A

(J) Laing & Son vs Kingswood Assessment Committee (1949) [Court of Appeal]

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28
Q

What does it mean by “actual”occupation?

A

In its simplest form, there needs to actually be someone there. Eg presence of a shop, office or warehouse, or the acts done by the occupier to make use or control the land

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29
Q

Does legal possession mean that you are in rateable occupation?

A

No, people who have no title but take occupation, either with or against the owners will, is in rateable occupation.

In simplest terms, unless you’re there actually physically occupying it, you’re not in rateable occupation

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30
Q

Does legal title have any relevance within Rating?

A

Not particularly because Rating is concerned with occupation and not ownership.

Trespassers, licensees and squatters can be liable to the rates if they are found to be occupying the hereditament despite having no legal title!

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31
Q

What does actual occupation ultimately come down to?

A

Matters of fact and not law.

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32
Q

What is beneficial occupation?

A

This is where the occupation of the property must be of some benefit or value to the rateable occupier.

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33
Q

Does a property have to be profitable to be considered as having beneficial occupation?

A

Not necessarily although this is considered to be a prime motive of any occupier

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34
Q

What are some other things to consider for beneficial occupation?

A

Would they be willing to pay a rent?

Does the occupation add value?

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35
Q

What is exclusive or paramount occupation?

A

This is where the hereditament is available solely for the use of the rateable occupier.

It is exclusive for a particular purpose.

If there is a competing occupier for the same purpose, then one or the other will be the rateable occupier, and not both.

36
Q

What are the two leading cases with regard to exclusive or paramount occupation?

A
  1. Westminster City Council v Southern Railway, The Railway Assessment Authority and WH Smith
  2. Cardtronics and Others v Sykes (2020)
37
Q

What can you tell me about the WH Smith case with regard to exclusive occupation?

A

The case was to consider whether WH Smith were in exclusive occupation given that they were subject to railway bylaws and conditions such as the train station closing and what publications could be sold.

It was found that WH Smith were rateable and in exclusive occupation as the restrictions were no more than restrictive covenants in a lease and their occupation was paramount for the purpose in which the bookstall was occupied.

38
Q

What is the definition of a hereditament as per the Local Government Finance Act 1988

A

A definition isn’t properly defined in this Act, where instead it refers to the definition of a hereditament from the General Rate Act 1967, which the LGFA 1988 repealed.

In the General Rate Act 1967, it states that a hereditament is: “a property which may become liable to a rate, and may also be shown as a separate item in the valuation list.”

39
Q

What are the key rules for identifying a hereditament?

A
  1. Be within one or more billing authorities areas
  2. Have a single rateable occupier
  3. Be capable of separate occupation
  4. Be a single geographical unit
  5. Be put to a single purpose
  6. Have a single definable position
40
Q

How do we value composite hereditaments?

A

A property which contains both domestic and non domestic elements.

When a property is identified as being a composite hereditament, the actual distribution of domestic and non domestic use is ignored, and a notional usage based on the prevailing pattern for similar accommodation in the locality is used.

This follows the principle of vacant and to let.

41
Q

Where are exemptions from Non-Domestic Rating found?

A

Schedule 5 of the Local Government Finance Act 1988

42
Q

What are some exemptions from Non-Domestic Rating?

A
  1. Agricultural land (arable, meadow or pasture)
  2. Religious worship
  3. Facilities used for the training of disabled people
  4. Public parks
  5. Fish farms
43
Q

What is the difference between an exemption and a relief?

A

Exemption is where the property or part of it is completely exempt from paying Non-Domestic Rates.

Relief is where by through statute or discretion of the billing authority, some relief from paying Non-Domestic Rates is provided.

44
Q

What are some examples of non domestic rating reliefs?

A
  1. Small Business Rates Relief
  2. Rural relief
  3. Charitable relief
  4. Local newspaper relief
45
Q

Can you tell me about Small Business Rates Relief?

A

Applied where a property has a Rateable Value of less than £51,000 by using the SBRR multiplier of 49.9p (0.499)

If a property has an RV of less than £12,000, 100% relief is applied. Between £12,000 and £15,000 it’s on a slider from 100% to 0% relief (e.g. £13,500 is 50% relief).

46
Q

What is the definition of Rateable Value?

A

An amount equal to the rent that the hereditament would reasonably be expected to let for on the assumption that:

  1. The tenancy begins on the date of determination
  2. The hereditament is in a reasonable state of repair (but excluding from this assumption any repairs that a reasonable Landlord would consider uneconomic)
  3. The Tenant undertakes to bear all the costs associated with the rent to maintain the hereditament in a state to command the rent
47
Q

Where can you find the definition of Rateable Value?

A

Local Government Finance Act 1988, section 6, paragraph 2(1)

48
Q

For the repair assumption within Rateable Value, what are we assuming?

A

For Rating purposes we normally assume that hereditaments are in a reasonable state of repair.

Only in exceptional circumstances do we consider the actual state of repair

49
Q

How is the repair assumption linked to redevelopment or reconstruction works?

A

In Newbigin (VO) v Monk, the Supreme Court laid down questions, such as:

Are the premises undergoing reconstruction rather than being in a state of disrepair?

If the premises are undergoing reconstruction, they are therefore incapable of beneficial occupation and the repair assumption doesn’t apply as there’s no value.

If the premises are not undergoing reconstruction and can still be occupied, the repair assumption still applies and there is still value to the hereditament.

50
Q

What is a key piece of evidence you would require to know whether a hereditament is due to undergo redevelopment?

A

A programme or schedule of works.

51
Q

How would you identify if the property is in disrepair and therefore not subject to the repair assumption?

A

You would need to identify if the works required are economically reasonable or not to decide if a property is in disrepair

52
Q

What are some additional rules to the hypothetical tenancy which aren’t explicitly mentioned within the definition of Rateable Value?

A
  1. Hypothetical tenancy rules apply so real world covenants don’t apply for Rating purposes.
  2. Vacant and to let - All hereditaments are assumed vacant and to let on the statutory terms of the hypothetical tenancy.
  3. Fresh on the scene - The hypothetical Tenant is assumed to be fresh to the scene.
  4. Rebus sic stantibus - Taking the thing as it is. Although the tenancy is hypothetical, we assume the hereditament is how it is at the valuation date with only minor physical limited changes envisaged and no changes to the mode or category of use.
  5. Mode or category - Not defined in legislation, considers the property class rather than specific use. A shop as a shop, factory as a factory.
  6. The Reality Principle - We assume all sorts of hypothetical scenarios to value a hereditament for Rating purposes, but that’s as far as we go. We don’t depart from the real world any further than the rating hypothesis.
53
Q

What are the two limbs to rebus sic stantibus?

A
  1. Physical use (actual physical characteristics)
  2. Actual use (mode or category)
54
Q

What is the Antecedent Valuation Date (AVD)?

A

It is the day in which the market and economic factors are taken in to account. Effectively a fixed valuation date.

55
Q

What is the material date?

A

This is the day when all the physical factors are taken into account

56
Q

What is the effective date?

A

The day in which rate liability changes (eg starts and stops)

57
Q

Where can you find the mentioned matters in relation to the material day?

A

Local Government Finance Act, Schedule 6, Paragraph 2(7)

58
Q

What are the mentioned matters that are to be taken at the material day?

A

a) Matters affecting the physical state or physical enjoyment of the hereditament

b) The mode or category of occupation of the hereditament

c) The quantity of minerals or other substances in or extracted from the hereditament

cc) The quantity of refuse or waste material which is brought onto and permanently deposited on the hereditament

d) Matters affecting the physical state of the locality in which the hereditament is situated or which, though not affecting the physical state of the locality are nonetheless physically manifest there

e) The use or occupation of other premises situated in the locality of the hereditament

59
Q

What is meant by tone of the list?

A

The level of values that are established in a Rating List

60
Q

What is rental selection in Non-Domestic Rating?

A

It is the process of finding rents and deciding which rents to use for a rating assessment.

61
Q

What rents would you to expect to have the highest weighting in Non-Domestic Rating?

A

Rents which are agreed close to the AVD and on terms that closely match the definition of Rateable Value

62
Q

Can all rents be considered in Non-Domestic Rating?

A

Yes, with the task being to decide how much weight to attribute to the rents

63
Q

When are some examples when you would attach little to no weight to a rent for Non-Domestic Rating?

A
  1. If a rent requires significant adjustment
  2. If a rent cannot be made to conform to the rating hypothesis
  3. If a rent was agreed further away from the AVD
  4. Connected parties rents
  5. Sale and leaseback rents
64
Q

What is an anchor tenant and why are they useful in Non-Domestic Rating?

A

Anchor tenants are well known high street names who are used in retail developments to help attract other tenants

65
Q

How much weight should you attribute to a rent agreed for an anchor tenant?

A

The rent paid can sometimes be lower so as to help attract other tenants and the other values increase. In addition there may be quantum elements also as the anchor tenant may occupier a larger space.

66
Q

What are tender rents and are they reliable?

A

Tender rents are rents where the Landlord will put the lease out for tender with the hope of achieving the highest rent possible.

How much weight to attach will be dependent on whether there are restrictive covenants in place for the prospective rent and whether the bidding tenants have been advised on the full market conditions.

67
Q

Are rent review rents reliable for rental evidence?

A

It depends on the circumstances. The valuer will have to make certain assumptions to arrive at the new rent. The assumptions may not line up with the rating hypothesis and the rents will need adjusting to bring them in line

68
Q

What are some of the assumptions a Valuer would consider when analysing a rent review clause?

A
  1. The length of the lease to be assumed
  2. How improvements are to be treated
  3. Upward only rent increases
  4. A willing Tenant provision
69
Q

Are Tenants improvements reflected within the rent?

A

No, the Landlord and Tenant Act 1954 states that they should be excluded.

70
Q

What is the leading case law on weighting of evidence?

A

Lotus & Delta Ltd v Culverwell (VO) [1976]

71
Q

What are the 6 propositions laid out within Lotus & Delta?

A
  1. The subject property rent is the starting point
  2. The closer the rent is agreed to the statutory requirements then the more weight should be attached to it
  3. Where the rents of similar properties are available they too should be looked at to decide on value
  4. Assessments of other comparable properties are also relevant
  5. In light of all the evidence an opinion can then be formed of the value
  6. In cases where there are no rents available of comparable properties, reviewing other assessments may be helpful, but it would be more difficult to reject the subject rent
72
Q

What is the case law for all evidence being admissible and instead regard has to be made to _____?

A

Specialeyes v Felgate (VO) [1994] and formerly Garton v Hunter (VO) [1969] and weighting of evidence

73
Q

Why do we carry out rental adjustment in Non-Domestic Rating?

A

To match the definition of RV and the Rating Hypothesis

74
Q

What are some aspects of a lease which you may expect to find and make adjustments for?

A
  1. Repairs
  2. Insurance
  3. Rates
  4. Rent free periods
  5. Premiums
75
Q

How would you make adjustments for repairs and insurance in Non-Domestic Rating?

A

I would adjust the lease to be on FRI terms so that the Tenant is responsible for all the outgoings as per the definition of RV

5% for external and internal repairs
3.5% for insurance

I would also consider if a service charge is present as this is effective FRI terms

76
Q

How would you make adjustments for rates in Non-Domestic Rating?

A

The hypothetical tenancy assumes that the Tenant pays the rates. Therefore if my rent includes rates, I would strip this out from the rental figure.

77
Q

How would you make adjustments for services in Non-Domestic Rating?

A

The hypothetical tenancy assumes that the Tenant is responsible for services, therefore I would strip this figure out of rent.

If a service charge is present then this effectively makes the Tenant responsible

78
Q

How would you make adjustments for fixtures and fittings in Non-Domestic Rating?

A

If the rent includes fixtures and fittings, I would deduct these from the rent as they are not rateable

79
Q

How would you make adjustments for plant and machinery in Non-Domestic Rating?

A

I would have regard to whether the Plant and Machinery included in the rent is rateable or not, and then deduct any non/rateable P&M from the rent

80
Q

How would you make adjustments for user covenants in Non-Domestic Rating?

A

The hypothetical tenancy assumes the property is vacant and to let, if there is a restrictive covenant in place, then this would reduce the value of the property.

I would therefore add to the rent the amount the covenant has depreciated the rent to arrive at the true market rent.

81
Q

How would you make adjustments for Tenants improvements in Non-Domestic Rating?

A

This will depend on whether the improvements carried out were a requirement of being granted the lease by the Landlord or whether the improvements were undertaken by the Tenant to fulfil their own requirements.

If the improvements are a requirement then this will be factored in to the analysis and adding value to the rent.

If the improvements are undertaken not as a condition of the lease then I would need to consider the lease provisions for whether they can be incorporated at rent review or lease renewal.

The Landlord and Tenant Act 1954 for lease renewal states tenants improvements can be disregarded provided they were carried out not due to an obligation and were carried out during the current tenancy

82
Q

How would you make adjustments for living accommodation in Non-Domestic Rating?

A

When a property comprises of residential element, this will need to be apportioned and deducted to arrive at just the non domestic element aspect

83
Q

How would you make adjustments for VAT in Non-Domestic Rating?

A

The VAT would need to be deducted from the rent to arrive at a net rental figure

84
Q

How would you make adjustments for a stepped rent in Non-Domestic Rating?

A

I would first calculate the present value of the stepped rents, and secondly then take the annual equivalent of the remaining market rent sum over the full period

85
Q

What is the order of adjustment for Non-Domestic Rating?

A

It is normal practice for any adjustment to reflect the responsibility for repairs and insurance to be made at the end after all other adjustments have been made

apc spring 2024 (18 decks)

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