Local government finance circular 4/2024: Green Freeports Non-Domestic Rates relief and income retention

Non-Domestic Rates relief

Introduction

1. As set out in the Green Freeports in Scotland: bidding prospectus, Non-Domestic Rates (NDR) relief will be available in specified ‘tax sites’ in Green Freeports (GF) (“GF relief”) once these tax sites have been designated. Businesses will potentially be eligible for up to 100% GF relief on certain properties and property improvements within these tax sites, the intention being that this relief support new businesses[1] as well as existing businesses[2] when they expand into new or unused space.
2. The relief will be available for up to five years from the point at which the beneficiary becomes eligible for GF relief. As announced on 6 March 2024 Scottish and UK Ministers have agreed that window for Green Freeport Tax Reliefs will be extended from 5 to 10 years to 2034. The extension is subject to the outcome of a mid-point review in 2028.  Subject to the outcome of that review, the relief must be applied for by 30 September 2034. Eligible firms will be able to apply to the relevant local authority to access this relief.
3. This section of the document is intended to provide non-statutory guidance for local authorities in relation to:

• the administration of the GF relief by local authorities; and
• the reporting requirements for the provision of GF relief and the detail of the funding mechanism from Scottish Government to local authorities.

4. Enquiries on this measure should be addressed to the NDR Team, (NDR@gov.scot), Green Freeports Unit mailbox (greenfreeports@gov.scot) and the Local Government Finance Statistics mailbox (lgfstats@gov.scot).

Green Freeports Relief Administration

5. The Scottish Government is not changing the legislation relating to the NDR reliefs. Instead, the government will, in line with the eligibility criteria set out in this guidance, provide local authorities that use their discretionary relief powers under Section 3A of the Local Government (Financial Provisions etc.) (Scotland) Act 1962, as amended by the Community Empowerment (Scotland) Act 2015 (Part 11) to award GF relief, with additional General Revenue Grant funding (see the Funding Mechanism section below) to compensate local authorities for the cost of awarding GF relief.
6. GF relief is entirely at local authorities’ discretion. When a local authority awards relief within the designated GF tax sites to eligible properties, in accordance with this guidance, it will be refunded the cost of these awards by the Scottish Government via additional General Revenue Grant funding (see the Funding Mechanism section below).
7. The Scottish Government will not meet any new burdens costs associated with the implementation of GF relief.
8. Local authorities may wish to consider the following principles and conditions within their GF relief policy:

Timespan and Eligibility

1. GF relief is only available once the relevant tax site has been established and designated.
2. As announced on 6 March 2024 Scottish and UK Ministers have agreed that window for Green Freeport Tax Reliefs will be extended from 5 to 10 years, to 2034. The extension is subject to the outcome of a mid-point review in 2028.  Subject to the outcome of that review, the relief must be applied for by 30 September 2034.
3. Subject to paras a and b, GF relief will be available for up to five years from the point at which the beneficiary becomes eligible for GF relief even if another relief is awarded in lieu of GF relief for some or all of that period (e.g. if a property is first eligible for GF relief on 30 March 2028, the relief may be awarded until 29 March 2033. If the ratepayer has applied for Business Growth Accelerator (BGA) relief on the same property or rateable value growth and is eligible for BGA relief, then BGA relief must be awarded as this is a mandatory relief, and GF relief would be awarded from the end of the BGA relief award to, in this example, 29 March 2033, to provide five years of relief in total).  
4. The trigger point for eligibility for GF relief is the point at which one of the outlined circumstances below takes effect.  

New Build and New Occupation

5. 100% relief is available on properties that become occupied for the first time within the timeframe above regardless of whether they are occupied by new or existing businesses (the latter so long as it is expanding into a further property). This covers:

• Newly occupied new builds (note: new builds are those that should be identified by a mark on the valuation roll under section 2A of the Local Government (Scotland) Act 1975). To note, new builds that have never been occupied may also qualify for 100% Business Growth Accelerator relief for up to three years, including in GFs.
• A newly occupied existing property (i.e. if the property is occupied by a ‘new business’ for the first time regardless of whether the property has been occupied previously; or by an ‘existing business’, providing the existing business is expanding into a separate further property in addition to the one(s) it already occupies in the GF. This relief is only available when properties are become occupied for the first time within the timeframe specified in paragraph e, regardless of any previous occupation that ended prior to this timeframe).

New Part-property Occupation and Property Improvements

6. 100% relief is available on the NDR bill associated with the rateable value of new space that has been newly[3] built and/or occupied; or to the increases in the rateable value of a property attributable to the improvements to an existing[4] occupied space. This covers:

• Where the occupier of a property creates new space by expanding the property (e.g. builds an extension)
• Where the occupier of a property newly occupies a previously unoccupied part of a property (e.g. newly occupies previously unoccupied new rooms/floors in a property).
• Where the occupier of an existing property makes new space useable through a property development or improvement (e.g. installation of a mezzanine or access/fire control improvements to bring an existing space into use). (Note: the mark on the valuation roll required for property improvements under section 2A of the Local Government (Scotland) Act 1975 may assist with identifying eligible parts or properties).

7. GF relief cannot generally be claimed on new part-property occupation or property improvements if:

• the expansion is merely into a part of a property that is already in use. 
• the improvement is to a space that prior to the GF designation, was already occupied and in use (e.g. general refurbishment/improvements e.g. heating and air-conditioning).
• the expansion pre-dates the GF designation.

Principles and Approach

8. Local authorities may choose to review or assess GF relief awards, and request any information they deem reasonable to determine whether they wish to award GF relief, including consulting with Scottish Assessors.
9. Local authorities may choose to refuse to award GF relief, for instance where a ratepayer cannot substantiate their claim, or where an increase in rateable value and corresponding increase in NDR bills is not reasonably ascertainable by the local authority.
10. Local authorities have ultimate discretion over the award of GF relief and may choose to apply additional tests that they deem appropriate in order to avoid incentivising displacement of activity in the GF area from the surrounding area. They may for instance choose to reduce the award of GF relief in cases where a ratepayer’s occupation of a space arises in whole, or in part, from them vacating another space in the GF area, or in a surrounding area.
11. The Green Freeports in Scotland: Bidding Prospectus sets out the overarching objectives for GFs:

• promoting regeneration and high-quality job creation
• promoting decarbonisation and a just transition to a net zero economy
• establishing hubs for global trade and investment
• fostering an innovative environment

It is also expected that GF operators should seek to embed fair work practices across GFs.

12. Local authorities may wish to have regard to these objectives and expectations when considering applications for GF relief.
13. When determining the appropriateness of awarding GF relief, the local authority may choose to consider if any connected companies, or groups of companies, should be considered a single business for the purposes of GF relief.
14. GF relief is subject to the UK’s domestic and international subsidy control obligations. Businesses located in designated tax sites will need to fulfil any requirements in place to ensure compliance with those obligations in advance of, during, and after claiming relief. The Department for Business and Trade has issued guidance for public authorities which explains the subsidies chapter of the Trade and Cooperation Agreement, World Trade Organisation rules on subsidies, and other international subsidy control commitments.

Funding Mechanism

9. Local relief schemes require to be funded from the relevant local authority’s budget, and as such GF relief awards will not be deducted from the local authority’s NDR Contributable Amount. In other words, the local authority will be required to contribute the cost of GF relief awards to the NDR Rating Account (or ‘Pool’). However, the Scottish Government will provide additional General Revenue Grant (GRG) funding to councils in respect of reported GF relief which falls within the parameters set out in this guidance in order to compensate for this.  See also paras 5 and 28 of the NDR income retention guidance (below) – as per para 5 of that guidance, the NDR income to be retained by the council in the tax sites will be determined by the amount that the NDR Income exceeds the Baseline Income. This will be derived from NDR paid on new buildings, extensions/improvements of existing buildings, and rebuilds of existing buildings resulting in higher rateable values and higher income, and will also include the value of GF relief awards and any BGA relief award where the property was also eligible for GF relief, but not BGA relief awards where the property was not also eligible for GF relief, and no other relief(s) whether or not the property was concurrently eligible for GF relief.
10. In the first and second years the relief is awarded, the Scottish Government will reimburse the local authority for any spend on GF relief through a redetermination of GRG the year after that financial year, corresponding to a council’s GF relief awards reported in the Notified NDR Income (NDRI) return, provided in June, following the financial year (i.e. June 2025 for the 2024-25 financial year).
11. In respect of GF relief awards from Year 3 onwards, the council will receive any additional GRG upfront in the same financial year – this will be based on the Notified NDRI return for GF relief awarded two years prior (e.g. in 2026-27 any additional GRG will be offered upfront based on the GF relief cost in the Notified NDRI return in 2024-25).
12. The Notified NDRI return for the corresponding financial year will then be used to update any additional GRG for councils in respect of GF relief. The difference between the upfront additional GRG and the Notified NDRI return will be the amount that the allocation will be adjusted by (positively or negatively), through a reconciliation or redetermination i.e. the upfront GRG provided in respect of 2025-26 will be compared to the GF relief cost in the Notified NDRI return in 2025-26 (which will be provided in June 2027).
13. For any year, the audited NDRI returns will be used to review the amount of GF relief awarded in the previous financial year. If the amount of audited GF relief councils have awarded falls below, or exceeds, any GRG in respect of GF relief made available for the corresponding year, then the difference will be adjusted (positively or negatively) from the council’s GRG allocation through a redetermination. The adjustment will be made to the GRG payments for the last two weeks of March.
14. The Scottish Government will not meet any new costs associated with the implementation of this relief scheme beyond what is set out in this guidance document.

Interactions with other reliefs

15. A property may be eligible for GF relief and another relief. For instance, if a new build comes into existence on 30 March 2028 in a GF tax site and is occupied from that day, and it applies for BGA relief, it may receive 100% BGA relief for 12 months (30 March 2028 to 29 March 2029) and 100% GF relief from 30 March 2029 to 29 March 2033. For clarity, it may not receive GF relief for five years after BGA relief has ended but only five years after the period of eligibility has commenced in respect of that particular property or property improvement.
16. Where a property is eligible for GF relief and a mandatory relief which is not time-limited, e.g. charitable rates relief, then the charitable rates relief will be awarded. The local authority would be reimbursed for the cost of awarding this relief through usual mechanisms, as it would were it outwith the tax site.

Interactions with NDR Income Retention Schemes

17. See the section on Non-Domestic Rates income retention.

Recording and Reporting Green Freeport Relief Awards

18. GF relief should be recorded in NDR statistical returns in the same way as other local reliefs.
19. GF relief will feature in the Billing system snapshot data collection from 2024-25 onwards as a separate relief. The relevant guidance and relief code will be published at: https://www.gov.scot/publications/billing-system-snapshot/
20. GF relief will feature in NDRI returns along with other local reliefs. The cost of GF relief awards will require to be contributed to the NDR Pool (i.e. it will not reduce the Contributable Amount), but the provision of this figure will ensure that the Scottish Government can reimburse local authorities for this relief via additional General Revenue Grant (see the Funding Mechanism section above).
21. Information on GF relief awards should also be published in accordance with the local authorities’ relief recipients lists. The relief type, code, percentage and amount awarded should be presented in the same way as in the Billing system snapshot. Local authorities should consult the Billing system snapshot guidance should they have questions on the reporting of the relief (e.g. if a property is in receipt of another relief as well as GF relief).
22. Separately, the Scottish Government may occasionally request that local authorities complete a survey in relation to GF relief awards for the purpose of policy evaluation.

Notes