Non-Domestic Rates (Liability for Unoccupied Properties) (Scotland) Bill - Islands Communities Impact Assessment

3. Assessment of Differential Impact on Islands

The intention of the Bill is to bring the legislative position into line with what councils and ratepayers had understood it to be, and current practice, so compared to the status quo as understood, there would on one view be no change, and no affected groups or sectors, should the Bill be enacted.

Compared to the actual legal position since 1 April 2023, the Bill would impose a rates liability that does not otherwise exist. The Bill would avoid the situation whereby owners of empty properties cease being billed for NDR and any rates they paid on empty property since 1 April 2023 is refunded, plus any interest due.

The only directly affected group of taxpayers would be the owners of empty non-domestic property across Scotland who are being billed for NDR or have been billed for NDR since 1 April 2023 on their empty property. They would be direct beneficiaries of the Bill not passing, as their empty property would cease being billed for rates and they could be entitled to refunds on rates paid on these properties since 1 April 2023, plus any interest.

There is no definitive data on which non-domestic properties are unoccupied in Scotland. Nevertheless, we estimate that rates on empty property amount to around £130m to £140m in 2025-26, and that this would grow in line with the Scottish Fiscal Commission’s May 2025 forecast of gross NDR income to approximately £150m to £160m annually by 2030-31. We further estimate that a one-off refund of rates paid on empty property between April 2023 and September 2025 could amount to approximately £300m-£350m, including interest. This figure rises to £350-400m if considering the three financial years 2023-24, 2024-25 and all of 2025-26.

The underlying assumption for these estimates is that the number and characteristics of unoccupied properties has remained similar to those which were awarded EPR (including any exemptions from rates, for instance on listed buildings) prior to devolution on 1 April 2023. Local relief schemes on empty property introduced by councils since 1 April 2023 often being less generous than the previous national EPR in place up to 31 March 2023 mean that it is likely that the proportion of unoccupied properties that have had an EPR award since 1 April 2023 is smaller than was the case prior to devolution of EPR. As local EPR schemes have tended to become less generous over time since 1 April 2023, more recent data on the properties that have had a local EPR award is likely to be less representative of the number of unoccupied NDR properties. The cost estimates above have, for this reason, been presented as ranges to reflect significant uncertainty as to which and how many properties are or have been unoccupied in the relevant period.

Breakdowns of rateable value (RV) by council area, can be found in Table 1 and show estimated average shares of RV for properties awarded EPR at Billing System Snapshot dates in 2020, 2021 and 2022. RV is multiplied by the relevant non-domestic rate (which depends on the property’s RV) to calculate a property’s gross NDR bill (i.e. before any reliefs are applied). RV therefore gives a better indication of a group of properties’ share of the tax base than property numbers. As there are different rates payable depending on a property’s RV, gross bills do not necessarily have a linear relationship with RV. This is not reflected in the tables.

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. It is also possible that changes to EPR that councils have made since the devolution of this relief have impacted the composition and size of the group of empty properties due to behavioural changes by property owners in response to changed incentives.

Table 1 shows that 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 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 empty office space being more located in cities than other areas.

There is a risk that the proportion of empty offices in particular is overstated, given 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 conclusions of this document. Take up of office space in Glasgow and Aberdeen did not significantly recover in 2023 and 2024, and take up of office space in Edinburgh appeared to recover from 2024. 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 estimated geographic distribution of empty property.

As shown in Table 1, council areas with inhabited islands^[1], with the exception of North Ayrshire, are all estimated to have a lower proportion of RV awarded EPR between 2020 and 2022 than their share of total RV across Scotland. This implies that non-domestic properties on islands are less likely to be empty than on the mainland taken as a whole, and therefore less likely to be directly affected in a comparison between a hypothetical baseline where no rates are levied on empty properties, and current practice (and also the position the Bill would legally establish). In other words, a lower share of ratepayers on the islands than on the mainland would cease being billed for empty property rates and/or refunded such rates should this Bill not be passed.

As set out above, this differential effect is driven by the high proportion of empty property estimated to be in Scotland’s cities, particularly Glasgow. However, many mainland council areas^[2] also have a lower proportion of RV which was awarded EPR between 2020 and 2022 than their share of total RV across Scotland. This highlights that any hypothetical effect in comparisons between a baseline and the preferred legislative action is not showing differences between mainland and islands, but reflects differences between urban areas and all other areas.

The Scottish Government guarantees the combined amount of General Revenue Grant provided and NDR redistributed to all local authorities each year. Where variances in NDR outturn relative to forecast occur, the Scottish Government adjusts the associated General Revenue Grant to ensure funding levels to local government align to the levels agreed in the Local Government Financial Settlement for that year. Therefore, any difference in NDR income variance between councils that would be caused by the hypothetical baseline compared to current practice would not impact, and would therefore not differentially impact, local authorities’ funding.