Property Tax Business Rates (UK)

Property TaxBusiness Rates (UK) Paul Sanderson President International Property Tax Institute

Outline of presentation A brief introduction to the International Property Tax Institute (IPTI) A brief look at property taxes in general Focus on some UK issues in relation to business rates The frequency of revaluations in other parts of the world The burden of annual property taxes in other countries Question time

About IPTI The International Property Tax Institute (IPTI) is an independent, not-for-profit organisation formed by industry experts from around the world to promote and foster property taxation and assessment ideals on an international scale

IPTI’s Mission “To provide impartial, objective expert advice in the area of property tax systems and promote the concept that these systems should be fair and equitable and meet the needs of all stakeholders, i.e. governments, taxpayers, practitioners and academics

What Does IPTI Do? Education and training: courses, conferences, workshops, seminars, etc., around the world Research, consulting and advisory services Publications: Journal of Property Tax Assessment & Administration (published jointly with IAAO) IPTI Xtracts: news extracts about property tax from around the world IPTIpedia: online international tax & assessment database Membership services [www.ipti.org]

Recent IPTI Projects Our recent projects include: A study of the PILT (CILOR) arrangements in Canada and elsewhere Research into the valuation of international airports for property tax Reports on the valuation of large industrial properties using the cost approach The treatment of “intangibles” for property tax purposes The preparation of professional valuation standards for those involved in property tax

Where does IPTI go? 2012 events involved the following locations: January – Madrid, Spain February – Hong Kong & Singapore March – Sydney, Australia April – Canada & USA May – Jamaica June – Bermuda July – Kuala Lumpur, Malaysia August – Sao Paulo & Rio de Janeiro, Brazil September – Canada & USA October – Orlando, USA December – Grand Cayman

Where does IPTI go? (cont) In 2013 so far we have been to: Las Vegas, USA Bahamas and Grand Cayman (again!) Delhi, India Washington, USA (World Bank Conference) Trinidad and Tobago Toronto & Vancouver, Canada New York, USA Durban, South Africa Melbourne, Australia Florida, USA And we will be going to: Trinidad and Costa Rica

IPTI’s Corporate Advisory Comm IPTI has a Corporate Advisory Committee (CAC) which focuses on the needs of its corporate members Many global corporations are members of the CAC CAC chaired by Doug Turner of GE IPTI also has a European Chapter of the CAC (ECAC) ECAC chaired by Philip Glenwright of Shell

Corporate Advisory Committee The CAC supports Corporate members by providing, among other things; Networking opportunities Opportunities to exchange global property tax management strategies with other corporations and industry experts Info-sharing experiences on technical matters, contracting strategies, country-specific tax and assessment related matters Ways and means of keeping apprised of critical developments which may affect corporations in future Opportunities to communicate and provide submissions to government agencies prior to legislation being enacted or changed

Property taxes - general Property taxes are generally used to fund the provision of local services which cannot easily be funded by user charges They are often seen as a “fixed local cost” by large corporations But property taxes need to be properly managed, particularly by global companies In many countries, property taxes are a high proportion of annual business outgoings

Property taxes – general (cont) Distinction between the “professional aspects” of property tax systems and the “policy/political aspects” Need to be aware of both aspects and appreciate the different roles Professional aspects will include valuation methodologies, values, etc Policy/political aspects will include tax rates, tax ratios, exemptions, reliefs, etc Also importance to understand the appeal regime

Property taxes – general (cont) Most developed countries use ad valorem basis for property tax, but may be variations on “market value” May be capital value, rental value, etc May be site value (land only); land and buildings; land, buildings, structures and other “improvements” (plant, machinery) Important to understand the “unit of assessment” Usually linked to liability (i.e. owner, occupier, etc)

Property taxes – general (cont) For industrial properties, important to understand what should be, and what should not be, included in the valuation In UK, very detailed list of plant and machinery to be included: power, services, infrastructure, etc Also need to consider valuation methods If cost approach used, may be issues around physical, functional and economic (external) obsolescence Need to “educate” assessors

International perspectives Property tax widely misunderstood by taxpayers and politicians It has the traditional strengths of stability and predictability It is a good way to pay for services that cannot easily be funded by user charges But property tax “suffers” from a very high level of transparency It involves an “in your face” bill

The “popularity” of property tax Extract from a recent letter in the US press: “The truth is those that rule over us don’t want to or can’t fix the current property tax system. Property tax is unfair, unjust, unworkable and above all a license to steal. It’s a system that is not based on one’s ability to pay, but rather one that enables the powers that be to keep sucking out of a bottomless check book after it continues to run dry. Are you now ready to abolish property tax?”

“The Hated Property Tax” This is the title of a recent paper written by authors based at Stanford University and the National Bureau of Economic Research Supported by the Lincoln Institute First sentence: “People hate the property tax more than other taxes.” Authors consider “salience” is critical

Meeting with Government IPTI held a meeting in London earlier this year, primarily for its corporate members Organised by the ECAC Ministers were invited; none attended! IPTI wrote to Prime Minister to complain Treasury Minister apologised and invited IPTI ECAC members to a meeting Meeting took place with HMT senior property tax policy advisors in August

Meeting with Government (cont) The main issues discussed at that meeting included: the annual increase in tax rate(s): RPI/CPI the frequency of revaluations the impact of empty property rating the present appeals system the need for a fundamental review of the business rates system DCLG and BIS committee reviews the Grimsey review

IPTI’s Annual Conference 2013 IPTI held its annual international conference in Crieff, Scotland on 4-5 September Although the conference was international, we had a “local” afternoon session with speakers from the VOA, SAA, LPS and IVO We also had taxpayers and speakers from the professional bodies We looked at a number of “local” issues

Current Issues – Property Tax Current issues around the world are very similar to the UK and include: The cost of value-based systems The basis of valuation (land, buildings, etc) The frequency of revaluations (recent BBC programme on this issue) Dealing with appeals (need for a responsive and efficient system) Setting the tax rate(s); tax ratios, affordability, etc Reliefs, exemptions, and adjustments The fairness of the system

Frequency of Revaluations Many jurisdictions (e.g. Hong Kong and British Columbia) have annual revaluations Many others have 2, 3, 4 or 5 yearly revaluations There is no doubt that a market value based property tax system needs frequent revaluations to maintain accuracy and fairness The problem is politicians!

Frequency of Revaluations (cont) The main problem is the “turbulence” created by revaluations Politicians are “afraid” of revaluations, particularly for residential properties But the longer a revaluation is delayed, the more turbulence is likely to be created There is a need for revaluations to be “business as usual” Need for a political “champion” to promote the benefits of property taxes

The burden of property tax It is interesting to compare the burden of property taxes in different countries However, care needs to be taken when making such comparisons It is often difficult to ensure that comparisons are on a “like for like” basis It is also necessary to look at the overall “basket” of taxation to see the real picture However, the UK does have the highest burden of property taxes

A European Perspective

A Global Perspective Taxes on property as a % of GDP (OECD figures - 2010): United Kingdom 4.2 Canada 3.5 USA 3.2 Israel 3.1 Korea 2.9 Japan 2.7 Australia 2.5 New Zealand 2.2

Data on other countries It is quite difficult to track down reliable data about other property tax systems IPTI provide two main sources: IPTIpedia which contains “core” data IPTI Xtracts which contains latest news IPTI involved in other projects to improve property tax data COST-IPTI survey and scorecard

COST-IPTI Scorecard Involves a survey to establish the facts and a scorecard to determine transparency, fairness and effectiveness Phase 1 of the project: COST is focussing on the USA IPTI is focussing on other countries including: United Kingdom; Canada; Australia; New Zealand; Hong Kong; South Africa Publication of report early next year

A brief look at other countries USA - interesting situation with a number of elected officials (assessors) in charge of property tax assessments Interesting to speculate upon the election pledges of a property tax assessor! USA has a very large number of assessment jurisdictions (over 12,750), many of which are quite small Impact of large and/or specialised, high value property located in a small county Negotiation of tax breaks Valuation issues

A brief look at other countries Australia has an interesting “mix” of property tax systems Land tax at State level Rates at local government level Rates may be based on unimproved land or improved land value Some improved values are based on capital value; others on rental value Impact of the Henry Report

A brief look at other countries New Zealand has a Valuer-General but uses mostly private sector firms to do the valuation work Quotable Value is the largest firm doing this work Issues around public/private sector Accountability/Quality Assurance Role of the Valuer-General

A brief look at other countries China is considering the introduction of property tax systems Current pilots in two main cities may be rolled out to others Incentive is not primarily to raise revenue At least part of the motivation for property tax is to try to limit house price rises Property tax is not very popular in China!

A brief look at other countries South Africa has a property tax system which has recently been “modernised” by moving to a market value basis But problems in terms of capacity, particularly outside the main urban areas Revaluations in Cape Town, Jo’Burg, etc Problems in rural areas and dealing with network properties Recent IPTI MAVS in Durban

A brief look at other countries Canada has well developed property tax systems in all Provinces MPAC in Ontario is the largest valuation agency in North America IPTI held a “Property Tax Summit” in Ontario last year to bring together all the key players and produce a report with recommendations for improvements Follow up meeting recently to monitor progress with changes

Ontario Property Tax Summit The main issues discussed were very similar to those affecting the UK: Concerns over the quality of property tax valuations (non-residential properties) The lack of effective communication between the key players The need for improvements in dealing with appeals The need for additional resources

Ontario Property Tax Summit Perhaps the key achievement of the “summit” was to get all the key stakeholders in one room IPTI was able to provide a “safe” environment in which the key players could share their views It was a very professional discussion with positive outcomes There seems to be a need for a similar event in the UK!

Question Time

Property Tax Business Rates (UK)