As policymakers consider tougher measures on vacant commercial property, the bigger question is how business rates can encourage investment in refurbishment and modernisation, returning buildings to occupation while supporting growth and regeneration.
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The debate around empty property is increasingly focused on penalties rather than incentives. Recent proposals to increase taxation on vacant commercial property raise important questions about how best to encourage investment and occupation.
Many empty buildings are not idle assets but properties in transition. Refurbishment, redevelopment, decarbonisation works, and changing occupier requirements often require significant investment before a building can return to productive use.
Occupied buildings create far greater economic, social, and fiscal value than empty ones. The long-term objective of business rates policy should not simply be to tax vacancy, but to encourage the investment that delivers jobs, growth, regeneration, and sustainable occupation.
The future of empty commercial property taxation has moved back up the policy agenda, prompting renewed debate about how best to encourage investment, occupation, and regeneration across the commercial property market.
The objective is understandable. Empty buildings rarely benefit local economies, occupiers, or communities. However, focusing solely on the taxation of vacancy risks overlooking a more fundamental question: what encourages owners to invest in buildings so they can be occupied again?
For commercial property owners, static vacancy is rarely a desired building status. Occupied buildings generate rental income, support capital values, and facilitate borrowing opportunities for further investment and reinvestment. Empty buildings generate none of those things.
In reality, many vacant properties are not static. They are in transition.
They may be undergoing refurbishment, improvement, or redevelopment. They may require investment to meet changing occupier expectations or tightening Minimum Energy Efficiency Standards (MEES). In some cases, owners are actively preparing assets for future occupation but face significant costs or planning delays before that occupation can occur.
Against that backdrop, the interaction between business rates, empty property liabilities, and investment incentives has become increasingly important.
Why Empty Property Rates Increase Holding Costs
Once the initial exemption period expires, owners can become liable for empty property rates despite receiving no rental income from the asset.
The original policy intention was to encourage occupation by increasing the cost of vacancy. However, many of the factors that contribute to vacancy are structural rather than behavioural. Planning delays, refurbishment programmes, supply chain disruption, market conditions, and regulatory requirements cannot always be solved simply by increasing taxation.
For investors and landlords, empty rates represent a significant holding cost during periods when substantial capital is already being committed to improving a building.
How Vacancy Can Restrict Property Investment
That creates a challenge. Every pound spent on empty rates is a pound that cannot be invested in refurbishment, energy efficiency improvements, decarbonisation works, or wider regeneration activity. Equally, every pound invested in a building has the potential to attract further investment from occupiers, create employment, and support broader economic activity.
This issue becomes particularly relevant as owners face increasing pressure to modernise assets and deliver the quality of accommodation demanded by today’s occupiers. In some cases, the empty rates burden can absorb investment capital entirely. Faced with a building that requires substantial expenditure before it can be re-let, owners may conclude that demolition is the only economically viable option.
That outcome benefits nobody.
It reduces the stock of available commercial property, limits choice for future occupiers, and can remove lower-cost accommodation from the market altogether.
The Changing Legal Landscape
The debate around vacancy is occurring at a time of increasing scrutiny of empty property rates mitigation and management arrangements.
The Court of Appeal has now handed down its judgment in The Mayor and Commonalty and Citizens of the City of London v. 48th Street Holdings Limited & Anor, a decision with potentially significant implications for certain forms of intermittent occupation schemes.
The judgment considers the extent to which principles traditionally associated with tax avoidance legislation can apply to certain empty rates mitigation arrangements where occupation has been carefully structured to secure relief. The decision reinforces the importance of ensuring that any occupation has a genuine commercial purpose beyond simply securing a rates exemption.
What Property Owners Should Consider
While the outcome remains uncertain, the case highlights the growing importance of ensuring that any occupation has a genuine commercial purpose beyond simply securing a rates exemption.
At Ryan, our approach has always been cautious. We have consistently advised that rates mitigation should be considered only after other options have been exhausted and that any occupation strategy must be grounded in genuine commercial activity. As the legal landscape evolves, property owners should ensure that existing arrangements remain robust and capable of withstanding increased scrutiny.
Improvement Relief and Investment Incentives
While much attention is focused on taxing vacancy or restricting mitigation opportunities, there is arguably less discussion about how the business rates system can actively encourage investment.
One example is improvement relief.
Introduced in April 2024, improvement relief was designed to ensure that qualifying improvements do not immediately result in higher business rates liabilities. The principle is straightforward: businesses should not be discouraged from investing because doing so increases their tax bill.
Why Investors and Developers Need Greater Support
However, much of the investment undertaken in commercial property is funded by landlords, developers, and investors rather than occupiers.
Owners frequently fund major refurbishment projects, energy efficiency upgrades, and works required to meet regulatory standards. Yet many of these activities fall outside the current relief framework.
This creates an important question for policymakers. If the objective is to bring more buildings back into productive use, should greater emphasis be placed on supporting the investment that makes occupation possible?
For some owners and occupiers, there may also be opportunities to structure occupation and improvement programmes in ways that maximise the benefit of existing reliefs. These opportunities are often most effectively captured when considered before works commence rather than after investment decisions have already been made.
For investors and property owners, the interaction between empty property rates, refurbishment programmes, improvement relief, MEES compliance, and evolving case law is becoming increasingly complex.
Decisions taken at the start of a project can have considerable financial and tax implications years later. Whether contemplating redevelopment, refurbishment, vacancy strategies, or future occupation, understanding how these issues interact is becoming increasingly essential.
Ryan is uniquely placed to advise in this area. As the UK’s leading property tax adviser, we work with clients across the full lifecycle of commercial property ownership.
Our teams advise on empty property rates liabilities, mitigation strategies, redevelopment projects, improvement relief opportunities, business rates appeals, and wider investment-led property tax planning. However, these issues rarely exist in isolation. Decisions around refurbishment, redevelopment, occupation, and sustainability investment can create opportunities across multiple taxes and reliefs.
As a global tax firm, Ryan helps clients identify and maximise value beyond business rates, including capital allowances, tax incentives, compliance obligations, and wider tax planning opportunities that can arise throughout the property investment lifecycle. By taking a holistic view of the asset, clients can often unlock value that extends well beyond the immediate business rates position.
Ultimately, the goal of policy should not simply be to collect more tax from empty buildings.
It should be to encourage investment that returns buildings to productive occupation.
An occupied building supports employment, attracts further investment, generates spending, and contributes to the vitality of local communities. It also generates significantly more tax revenue than an empty building ever will through business rates, employment taxes, corporation tax, VAT, and wider economic activity.
The objective should therefore be straightforward: create the conditions that encourage buildings to return to productive use.
If the aim is growth, regeneration, and stronger public finances, policymakers should focus as much on rewarding investment as they do on penalising vacancy.
Because the most successful commercial property is not an empty building paying tax.
It is an occupied building creating value.
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