Rates are local taxes levied on occupiers of property by the responsible area authority, intended to cover the costs of providing local amenities and services.
Updated: Jun 14, 2024
3 key takeaways
  • Rates are local taxes imposed on property occupiers to fund public services and amenities.
  • These taxes can be based on property value or, in some cases, directly on income.
  • The system often differentiates between commercial and residential properties, with varying rates and possible relief for unoccupied properties.

What are rates?

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Rates are local taxes assessed on property occupiers, typically collected by local government authorities to fund public services and infrastructure.

These taxes are crucial for maintaining and improving local amenities such as parks, waste collection, public libraries, and other community services. The method of assessment and the specific rate applied can vary depending on the country and local regulations.

Importance of rates

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Rates are important because they provide a significant source of revenue for local governments. This revenue is used to fund essential services and infrastructure projects that benefit the community.

Rates help ensure that local areas have the necessary resources to maintain public spaces, support community initiatives, and provide essential services to residents and businesses.

Types of rates

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Rates can be categorized based on the type of property and the method of assessment:

Property-based rates

In many countries, rates are assessed based on the value of the property. This system, known as property tax, charges occupiers according to the assessed value of their property. The higher the property value, the higher the rate paid.

Income-based rates

In some jurisdictions, rates may be directly tied to the occupier’s income. This method adds a local tax component to national income tax, ensuring that individuals contribute to local services based on their ability to pay.

Example of rates in practice

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In the United Kingdom, the local government charges business rates on non-domestic properties, such as shops, offices, and factories. These rates are based on the property’s “rateable value,” which is determined by the Valuation Office Agency.

Residential properties, on the other hand, are subject to council tax, which is based on the estimated value of the property and the number of people living in it.

Impact of rates

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Rates have several significant impacts on communities and property occupiers:

  • Funding public services: Rates provide the necessary funding for maintaining and improving local services and infrastructure, directly benefiting the community.
  • Economic influence: The level of rates can influence business decisions, such as where to locate or expand operations. Higher rates on commercial properties can affect profitability and competitiveness.
  • Social equity: The structure of rates can impact social equity. Systems based on property value or income aim to distribute the tax burden according to the occupier’s ability to pay, promoting fairness.

Relief and exemptions

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To address specific circumstances, many rate systems offer relief or exemptions:

  • Empty property relief: Properties that are unoccupied for a certain period may qualify for a reduction or exemption from rates.
  • Small business relief: Some jurisdictions provide reduced rates for small businesses to support economic growth and development.
  • Mixed-use properties: Properties that serve both commercial and residential purposes might be subject to different rates for different portions of the property.

Example of rate relief

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Consider a commercial property in the UK that has been vacant for several months. The property owner may apply for empty property relief, which can reduce or eliminate the rates due during the vacancy period.

This relief helps mitigate the financial burden on property owners who are not generating income from the vacant property.

Understanding rates is essential for property occupiers and local government authorities. By funding essential services and infrastructure, rates play a crucial role in maintaining community well-being and supporting economic development.

The structure and level of rates, along with available relief options, significantly impact both individual occupiers and the broader community.

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Arti is a specialized AI Financial Assistant at Invezz, created to support the editorial team. He leverages both AI and the Invezz.com knowledge base, understands over 100,000... read more.