The Non-Domestic Rates (Liability for Unoccupied Properties) (Scotland) Bill - Business and Regulatory Impact Assessment
Business and Regulatory Impact Assessment for The Non-Domestic Rates (Liability for Unoccupied Properties) (Scotland) Bill
Section 1: Background, aims and options
Background to policy issue
Section 19 (unoccupied properties) of the Non-Domestic Rates (Scotland) Act 2020 (“the 2020 Act”) was intended to devolve responsibility for Empty Property Relief (EPR) to local authorities following an agreement with the Scottish Green Party. It was based on the understanding that the legislative framework provided a default position whereby owners of unoccupied property were liable to pay rates. Local authorities separately have powers to put in place local reliefs for properties in their respective areas including unoccupied properties.
It has recently been identified, however, that section 19 of the 2020 Act has not had the intended effect and that there has been no legal basis for councils to levy NDR on the owners of empty properties since 1 April 2023.
Purpose/ aim of action and desired effect
Primary legislation is required to provide a proper and permanent legal basis to levy rates on the owners of unoccupied properties. The Non-Domestic Rates (Liability for Unoccupied Properties) (Scotland) Bill (“the Bill”) is intended to do so with retroactive effect from 1 April 2023. This will bring the legislative position into line with what councils and ratepayers have understood it to be, and current practice, since 1 April 2023.
The intended outcome is to establish a position, with retroactive effect from 1 April 2023, whereby rates are leviable on the owners of unoccupied properties, subject to any reliefs that local authorities may choose to put in place under existing discretionary powers. Doing so would give effect to the intention of Parliament in enacting the 2020 Act and bring the legislative position into line with what councils and ratepayers had understood it to be.
The desired effect is to be able to charge rates on empty property, subject to any local relief available. The common design of local EPR tends to be a relief available on a time-limited basis (three to six months) to support businesses changing how they are using non-domestic property, before reducing or expiring. This reflects that properties can be empty for short periods of time for good reasons, as a business will sometimes change what property they are using or how they are using it.
The time-limited nature of local EPR reflects that property being left empty longer term is undesirable for the economy and the property market. Where empty property is not being used productively incentivising its reoccupation can help increase economic output, reduce costs to business through lower commercial rent and increase choice to business by increasing the supply of available property. It is therefore beneficial for councils to charge rates on empty property, whilst retaining the flexibility to offer relief on unoccupied property as they see fit.
Options considered
The Scottish Government gave consideration to the following options:
1. Do nothing.
Under this option, there would continue to be no legislative basis for local authorities to levy rates on empty properties, as has been the case since 1 April 2023. As local authorities have been levying rates on the owners of empty properties both before and after 1 April 2023 without interruption, subject to national EPR up to and including 31 March 2023, and to any local EPR they have put in place since 1 April 2023, this option would require them to refund rates paid on unoccupied properties by their owners since 1 April 2023 plus any interest and to stop billing the owners of unoccupied properties for rates.
2. Introduce a Bill which provides for local authorities to levy rates on unoccupied properties once the Bill comes into force (at the earliest).
This option would create a valid legal basis for rates to be levied on the owners of empty properties once the Bill comes into force. Given there was a valid legal basis for this prior to 1 April 2023, this option would create a gap between 1 April 2023 and the date the Bill comes into force where there would be no such valid legal basis. This would mean that local authorities have to refund any rates paid on unoccupied properties from 1 April 2023 and until the Bill comes into force at potentially significant financial cost.
3. Introduce a Bill which provides a valid legal basis for local authorities to levy rates on unoccupied properties from 1 April 2023.
This option would, in practice, restore the status quo, as it is the general (but mistaken) understanding that rates are due (subject to relief) on unoccupied properties both before and after 1 April 2023, whereas there has in fact been no legal basis for that liability since 1 April 2023. This option would establish a position, with retroactive effect from 1 April 2023, whereby liability for rates in respect of unoccupied properties falls upon the owner, subject to any reliefs that local authorities may choose to put in place under existing discretionary powers. Doing so would give effect to the intention of Parliament in enacting the 2020 Act and bring the legislative position into line with what councils and ratepayers have understood it to be. The Bill provides for this option.
Sectors / Groups affected
The Bill would bring the legislative position into line with that which councils and ratepayers have understood it to be and operated since 1 April 2023 in respect of rates due on unoccupied properties. Compared to the status quo as understood, there would be no change directly from the Bill passing, and on one view no specificgroups or sectors are affected. However, relative to the actual legal position since 1 April 2023, the Bill will impose a rates liability that, without the Bill, does not exist. The Bill would accordingly affect certain ratepayers.
Owners of Empty Non-Domestic Property
Those affected would be the owners of empty non-domestic properties who are liable for ongoing payments of NDR, and the owners of unoccupied non-domestic properties who have paid rates on these properties since 1 April 2023. Without the Bill, these owners would receive an unexpected windfall, as they would be entitled to a refund of any rates paid since 1 April 2023, plus any interest due, and potentially a reduced NDR bill in future. The Bill would restore liability for those owners, depriving them of that windfall by bringing the legislative position into line with that which councils and ratepayers have understood it to be and operated since 1 April 2023.
There is no definitive data on which properties on the non-domestic rates valuation roll are unoccupied. Nevertheless, an annual loss of income of around £130m to £140m in 2025-26 is estimated, growing to approximately £150m to £160m by 2030-31, and a one-off refund of approximately £350m to £400m, including any interest that is required to be paid on refunds of overpayments of NDR (for all of 2023-24 to 2025-26). Up to September 2025 only, this amount would be expected to be around £300m to £350m.
The underlying assumption with those figures is that the number and characteristics of unoccupied properties has remained similar to those awarded EPR prior to devolution. Changes from the pre-devolution national EPR policies made by councils since 1 April 2023 mean that it is likely that the proportion of unoccupied properties that have an EPR award is smaller than was the case prior to devolution of EPR. Therefore, more recent data on the properties that have an EPR award is likely to be less representative of the whole group of NDR properties that are unoccupied. The cost estimates above have been presented as ranges to reflect the significant uncertainty as to which and how many properties are or have been unoccupied in the relevant period.
Breakdowns of properties by council area, property class or other characteristics have been provided by calculating the average share of rateable value (RV) for properties awarded EPR at the snapshot dates in 2020, 2021 and 2022. RV is multiplied by the tax rate to calculate the NDR bill for a property (before any reliefs are applied). RV therefore gives a better indication of a group of properties’ share of the tax base than property numbers. However, as there are different rates payable depending on a property’s RV, bills do not necessarily change linearly with RV.
While there is little change in the shares of RV awarded EPR observed year to year from 2020 to 2022, it is possible that changes to economic conditions since then may have led to a change in the composition and size of the group of properties that are unoccupied. There is a risk that the proportion of empty offices in particular is overstated given that the data was collected during a period that included COVID related restrictions, which negatively affected the commercial property market. This is not, however, expected to materially change the main results presented in this document, given that the take up of office space in Glasgow and Aberdeen did not significantly recover in 2023 and 2024, and in Edinburgh the recovery in office space take-up appeared to occur from 2024. The main recovery in the market for urban office space also appears to favour new-build office space, which would not directly lead to re-occupation of empty office space.[1] The implication of this is that the strength of the effect of the urban office market in the observations may be slightly overestimated, but not to the extent that it would cease to be the dominant driver of the geographic and sectoral distribution of non-domestic empty property.
To test the financial sensitivity of this key risk, the effect of the amount of empty office RV in the properties awarded EPR between 2020 and 2022 being halved is explored. This reduces the amount spent before deducting spending on empty property relief by approximately 20%, reducing the net amount of rates that may need to be refunded by approximately £100m. It also reduces the estimates of future income lost by approximately £30m-£35m per year, up to around £35m to £40m per year by 2030-31.
It is also possible that the changes to EPR that councils have made since devolution have led to changes to the composition and size of the group of empty properties that are unoccupied due to behavioural changes by property owners in response to changed incentives.
Table 1 shows the split of RV between properties in the public and private sector with UK Government properties differentiated from those in the Scottish public sector. A greater share of RV is concentrated in the private sector for properties that received EPR between 2020 and 2022 than was the case for all non-domestic properties while the share of RV for UK Government properties that received an EPR award was the lowest relative to properties in that sector as a whole.
The Scottish Government does not hold property-level data on industry sectors however Table 2 shows the share of RV by class. Property class is a classification used by Scottish Assessors to describe the type of property and does not necessarily accurately reflect the use of a property. Properties in Class 3 (Offices) had the largest share by RV of properties awarded EPR. They also had a very high share relative to the share of RV for Class 3 properties on the valuation roll as a whole. Properties in Class 17 (Other), also had a significantly higher share of RV for properties awarded EPR relative to their share for all properties on the valuation roll.
Properties in Class 17 include properties not classified into other categories such as car parks or plots of land.
As shown in Table 3, properties in large urban council areas tended to have the largest share of RV for properties awarded EPR relative to the total RV share for properties in their council areas. Aberdeen, Glasgow, Dundee, and Edinburgh were all in the top six councils with the highest concentrations of RV for properties awarded EPR relative to their share of total RV, along with West Dunbartonshire and North Ayrshire. Properties awarded EPR in Aberdeen and Glasgow had the highest share of RV relative to the overall share of RV for properties in those council areas as well as the highest share of RV in absolute terms for properties awarded EPR. This is primarily driven by the large amounts of unoccupied office space in these cities relative to other areas.
The share of RV for properties awarded EPR between 2020 and 2022 was a little higher for those ratepayers with between two and ten properties and those with between eleven and fifty properties with correspondingly lower shares for the other bands, as shown in Table 4. There is also a large proportional difference in the “other” band, which mostly reflects that it is a comparison between two small numbers, and also the inherent uncertainty linked to being in the “other” category.
| Sector | (A) Average share of RV for properties awarded EPR 2020 - 2022 | (B)All properties average share of total RV 2020-2022 | (C) % difference in share of RV (A/B-1) |
|---|---|---|---|
| Council | 6.44% | 8.02% | -20% |
| Council ALEO | 0.81% | 1.02% | -20% |
| Other Public Sector - Scottish | 2.28% | 7.57% | -70% |
| Private Sector | 89.77% | 82.24% | + 9% |
| Public Sector - UK Government | 0.70% | 1.15% | -39% |
| Class Description | (A) Average share of RV for properties awarded EPR 2020 - 2022 | (B) All properties average share of total RV 2020-2022 | (C) % difference in share of RV (A/B-1) |
|---|---|---|---|
| Shops | 22.93% | 21.42% | +7% |
| Public Houses | 1.32% | 1.65% | -20% |
| Offices | 38.53% | 14.10% | +173% |
| Hotels | 1.37% | 3.86% | -64% |
| Industrial Subjects | 20.02% | 17.43% | +15% |
| Leisure, Entertainment, Caravans etc. | 1.53% | 4.05% | -62% |
| Garages and Petrol Stations | 0.48% | 1.00% | -52% |
| Cultural | 0.51% | 0.76% | -33% |
| Sporting Subjects | 0.30% | 0.43% | -30% |
| Education and Training | 2.44% | 7.70% | -68% |
| Public Service Subjects | 1.69% | 4.78% | -65% |
| Communications | 0.02% | 0.34% | -94% |
| Quarries, Mines, etc. | 0.24% | 0.21% | +11% |
| Petrochemical | 0.01% | 1.56% | -100% |
| Religious | 0.25% | 0.78% | -68% |
| Health and Medical | 1.03% | 3.17% | -68% |
| Other | 5.95% | 2.08% | +187% |
| Care Facilities | 1.35% | 1.69% | -20% |
| Advertising | 0.02% | 0.15% | -88% |
| Statutory Undertaking | 0.01% | 12.84% | -100% |
| Council | (A) Average share of RV for properties awarded EPR 2020 - 2022 | (B) All properties average share of total RV 2020-2022 | (C) % difference in share of RV (A/B-1) |
|---|---|---|---|
| Aberdeen City | 15.36% | 8.02% | +91% |
| Aberdeenshire | 4.45% | 4.06% | +10% |
| Angus | 1.12% | 1.09% | +2% |
| Argyll & Bute | 0.57% | 1.57% | -63% |
| Clackmannanshire | 0.50% | 0.58% | -13% |
| Dumfries & Galloway | 1.31% | 1.95% | -33% |
| Dundee City | 3.54% | 2.58% | +37% |
| East Ayrshire | 0.93% | 1.12% | -17% |
| East Dunbartonshire | 0.15% | 0.91% | -84% |
| East Lothian | 0.81% | 1.28% | -37% |
| East Renfrewshire | 0.22% | 0.57% | -61% |
| City of Edinburgh | 14.77% | 12.73% | +16% |
| Na h-Eileanan Siar | 0.12% | 0.37% | -66% |
| Falkirk | 1.71% | 2.49% | -31% |
| Fife | 5.23% | 5.62% | -7% |
| Glasgow City | 24.26% | 13.47% | +80% |
| Highland | 2.80% | 5.21% | -46% |
| Inverclyde | 0.35% | 0.75% | -53% |
| Midlothian | 0.87% | 1.19% | -27% |
| Moray | 0.84% | 1.70% | -50% |
| North Ayrshire | 1.81% | 1.55% | +17% |
| North Lanarkshire | 3.88% | 3.97% | -2% |
| Orkney Islands | 0.16% | 0.40% | -60% |
| Perth & Kinross | 1.48% | 2.21% | -33% |
| Renfrewshire | 2.84% | 3.92% | -28% |
| Scottish Borders | 1.24% | 1.42% | -12% |
| Shetland Islands | 0.39% | 0.80% | -51% |
| South Ayrshire | 1.60% | 1.57% | +2% |
| South Lanarkshire | 1.09% | 9.94% | -89% |
| Stirling | 0.84% | 1.69% | -50% |
| West Dunbartonshire | 4.51% | 2.61% | +73% |
| West Lothian | 0.33% | 2.68% | -88% |
| Number of sites per ratepayer | (A) Average share of RV for properties awarded EPR 2020 - 2022 | (B) All properties average share of total RV 2020-2022 | (C) % difference in share of RV (A/B-1) |
|---|---|---|---|
| Single site | 28.91% | 32.34% | -11% |
| 2 to 10 | 38.11% | 29.83% | +28% |
| 11 to 50 | 17.45% | 14.71% | +19% |
| 51 to 100 | 2.76% | 5.12% | -46% |
| 101 to 500 | 7.50% | 10.37% | -28% |
| Greater than 500 | 5.18% | 7.63% | -32% |
| Unknown | 0.09% | 0.00% | +2532% |
Other Affected Sectors
The Bill will bring the legislative position into line with that which councils and ratepayers have understood it to be and how it has operated since 1 April 2023. As such it delivers savings to the Scottish Government compared to a situation where rates cannot be charged on unoccupied properties since 1 April 2023.
It is estimated that a one-off refund of empty property rates by those who paid them between April 2023 and September 2025 would amount to approximately £300m to £350m including any interest (see Financial Memorandum). Under options 1 and 2, if this loss of income were not cross-subsidised by other sources of public funding in Scotland and was recovered within the NDR system, the Scottish Ministers would need to increase some or all rates and/or temporarily reduce or abolish existing reliefs[2]. This could impact other ratepayers. It is too uncertain to set out details of how the lost revenue would be recovered and over what period, which would all be budgetary decisions for the Scottish Ministers to take.
For illustrative purposes and assuming the reductions are applied solely within the NDR system, a £300 to £350 million impact would be approximately equivalent to:
- An estimated 1.9p increase above the Scottish Fiscal Commission’s (SFC) latest baseline assumption in each of the Basic, Intermediate and Higher Property Rates – equivalent to increases of 3.2%-3.7% - for the full three-year period of the 2026 revaluation cycle;
- An estimated 2.7p increase above the SFC’s latest baseline assumption in the Higher Property Rate – equivalent to a 4.6% increase in the rate – for the 2026 revaluation cycle; or
- A reduction in the generosity of Small Business Bonus Scheme relief from the manifesto commitment of taking 100,000 properties out of rates altogether to supporting around 70,000 properties each year of the 2026 revaluation cycle.
Looking forward, if the Bill is passed, from 2026-27 onwards, the net impact on forecast NDR income would be nil as the NDR income forecast already assumes that rates are levied on unoccupied properties. If the Bill is not passed however, the direct impact of not having a legal basis to levy empty property rates on the owners would be a decrease in total NDR income compared to the current forecast. Should the Scottish Ministers wish to maintain the same forecast NDR income, they would need to increase rates from 2026-27 for occupied properties and/or reduce the generosity of reliefs compared to the current forecast. This decrease in annual NDR income has been estimated at around £130m to £140m in 2025-26, growing to approximately £150m to £160m by 2030-31, assuming that it would grow in line with the May 2025 Scottish Fiscal Commission forecast of growth in gross NDR income. This would be approximately equivalent to:
- A permanent increase of approximately 2.3p above the SFC’s latest baseline assumption in each of the Basic, Intermediate and Higher Property Rates;
- A permanent increase of approximately 3.3p above the SFC’s latest baseline assumption in the Higher Property Rate; or
- A further reduction in the generosity of Small Business Bonus Scheme relief, and/or a reduction in the generosity, or the abolition of other reliefs.
For context, between 2018-19 and 2025-26, the Basic Property Rate (formerly poundage) has only increased by 1.8p overall, from 48p in 2018-19 to 49.8p in 2025-26. Within that period, it has been frozen at 49.8p for five of the last six years with the exception of 2021-22 when it was decreased to 49.0p in response to COVID.
Other knock-on effects on ratepayers could also be possible. An increased tax burden on occupied properties for example, could lead to more empty properties. NDR represents a fixed cost to occupiers and affects the financial viability of occupying non-domestic premises, and increasing the cost of occupation and reducing the cost of owning an empty property could distort the non-domestic property market. By increasing the cost of occupation through higher NDR and reducing the available supply of non-domestic property by removing the incentive of NDR cost on owners of empty property, the market for non-domestic property would be expected to shrink relative to a scenario where rates had not increased, and face upward pressure on rents for businesses occupying non-domestic properties.
Local Authorities
If the Bill is not passed, local authorities who administer NDR would face additional administrative costs from amending bills and processing refunds. The administrative costs would be dependent on the volume of cases which required a historic, or current, billing amendment, and may be complex. This makes financial estimates of administrative costs uncertain. However, based on refunds and re-billing being required for all unoccupied properties charged rates since 1 April 2023 (estimated up to 34,000) should the Bill not pass, local authority administrative costs could be around an estimated £150,000 to £370,000.
If the Bill is passed, there would be no direct cost of the Bill passing on local authorities. Any indirect cost would depend on what, if any, action local authorities take as regards refunds and rebilling in the period before the Bill comes into force.
Contact
Email: ndr@gov.scot