Buildings 'razed to avoid taxes'

Vacant property is being demolished as landlords seek to avoid paying tax

Buildings are being knocked down as businesses seek to avoid paying tax on empty properties, a government regeneration chief has warned.

In April, the government scrapped rate relief on empty industrial property such as warehouses.

The tax was aimed at landlords who kept premises empty in hope of better rents.

But John Nicholls, chief executive of the Urban Regeneration Companies, said the tax was leading to "pre-emptive demolitions" to avoid the tax bill.

"As well as the problem of pre-emptive demolitions, it's having an effect on supply of new property," Mr Nicholls said.

His organisation is in charge of government-funded private-public partnerships tasked with regenerating the UK's cities.

Damaging effect

Mr Nicholls said the new levy was having a damaging effect in areas in need of regeneration.

"Projects are being shelved because of the risk of having to pay rates on the finished product if there isn't a tenant signed up," he said.

Malcolm Holmes, associate director at property consultancy GL Hearn, said his company had advised an industrial landlord in Sunderland to demolish parts of the Alexandra Business Park to avoid an annual £120,000 tax bill.

"Before April 1, there was no rate payable. Their liability went from zero to £120,000 overnight."

He said that the company had demolished 150,000 square feet of property and was due to raze a further 37,000 to 38,000 square feet.

"Property in this part of the world does not let readily, especially the older stuff. When it (older property) becomes vacant I can see it being demolished."

He said the government needed to rethink its change its policy on rate relief.

Mr Nicholls said the intention behind the decision to scrap the tax concession was sound but the property market downturn had created problems.

"When this was put forward the market was very buoyant and there was a risk of people holding onto void property in hopes of bigger rents in the future but this is no longer the case - particularly in the areas I work."

No changes planned

A Communities and Local Government spokesperson said that reforms to empty property relief were "aimed at ensuring a fairer balance between incentives to re-let property, and giving property owners a period of relief while they manage vacancies".

"This follows recommendations by independent experts to encourage the most efficient use of land," they added, saying that 100% relief was still given for the first three months of a property falling empty, rising to six months for industrial premises and warehouses.

"There are no plans to change the policy. Any decisions on taxes are a matter for the Chancellor," they added.