DECAPITALISATION RATES DOWN FOR 2017 RATING REVALUATION
For most properties, the rental value in April 2015, which is the valuation date for rating purposes, will be used to set the new rateable value in April 2017.
However, for property where there is no general market or evidence of rents, the Government has announced the rate used to value them. These properties are valued by reference to their replacement cost—a method known as the “contractor’s basis.”. Many large properties are valued in this way, including hospitals, schools, colleges, and universities, as well as large industrial sites such as steel works and power stations.
As the rateable value of a property represents its annual rental value, a replacement cost contractor’s valuation, which is a capital value, will need to be turned into the annual equivalent rent. This is done using the “decapitalization rate,” which is the percentage of the capital value that is taken as the annual equivalent. For many years, the decapitalization rate has been set by the government at 5% for most and 3.33% for educational, healthcare, and defence properties.
However, for the 2017 revaluation, the Government has announced that these rates will be reduced to 4.4% and to 2.6% for properties in England. Scotland and Wales have their own decapitalization rates.
These figures are of significant importance to those ratepayers with properties that are valued in this way, and these reductions in the decapitalization rates represent an effective reduction of 12% and 21%, respectively.
The effect of this will mean higher rates overall as the Government will have to increase the UBR to compensate for this loss in the total tax take.