Section 477: heritage railways
This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.
This Instruction applies to all Heritage Railway premises.
This class encompasses a wide range of operational types, ranging from former British Rail branch line (standard gauge) down to quite small lengths of narrow gauge track often associated with other attractions, within a single assessment, which might be more loosely termed as “tourist attractions”.
Since the abandonment of steam as the source of power for British Rail, light railways have flourished as tourist attractions. Amongst the occupiers of these undertakings there is a growing number of Preservation Societies, some of which are registered charities; such bodies are formed of enthusiasts who raise money for projects - often buying the land, buildings, lines, rolling stock, etc - and many of whom then devote hours of their time in voluntary work to run them. Many heritage railway assessments receive significant charitable or discretionary rate relief and this, often coupled with relatively low assessments, has historically led to very few appeals.
A number of railways, such as the Severn Valley Railway, function as PLCs, having used share issue to raise capital. Such shares are not normally traded, and provide no income to the shareholder but may provide other benefits such as a number of complimentary tickets; the organisation may otherwise be similar to those of pure charitable status. Such railways may not attract relief and they may be differentiated from the very few examples of commercially run heritage railways.
2. List Description and Special Category Code
List description: Heritage Railway and Premises
Primary Description Code: LX
SCAT code: 128, suffix S
3. Responsible Teams
This is a specialist class of property, to be valued by Specialists in each Business Unit.
The Class Co-ordination Team has overall responsibility for the co-ordination of this class. Contact details are in VP and CCT Members. The team are responsible for the approach to and accuracy and consistency of valuations. The team will deliver Practice Notes describing the valuation basis for revaluation and provide advice as necessary during the life of the rating lists. Caseworkers have a responsibility to:
follow the advice given at all times
not depart from the guidance given on appeals or maintenance work, without approval from the co-ordination team
seek advice from the co-ordination team before starting any new work
5. Legal Framework
There is no specific legal framework in relation to this class of property. However, care needs to be taken where the more extensive properties cross Billing Authority (BA) boundaries. A single unit of assessment is still appropriate but will need entering in the Rating List for just one BA in accord with regulation 6 of the Non-Domestic Rating (Miscellaneous Provisions) Regulations 1989. For guidance see Rating Manual: section 3 part 1 - Occupation and the hereditament - Paragraph 10.
6. Survey Requirements
All buildings should be measured to Gross Internal Area (GIA) in accordance with the VOA Code of Measuring Practice. For track, linear metres (miles) and gauge should be recorded. In addition the following should be noted:
a.the complexity of signalling and points (and the number of sets) required to operate the railway;
b.the number, size and condition of stations, sheds, signal boxes, bridges, viaducts, tunnels, embankments, cuttings, level crossings to be maintained;
c.the number, size and condition of other buildings such as museums, heritage centres and public houses/refreshment facilities;
d.the times of operation and services provided – for example whether summer season or school holidays only, or a standard passenger service throughout the year, and regular promotions such as Santa specials, Thomas the Tank Engine weekends;
e.workshop facilities for repair of rolling stock with a note if work carried out for other societies;
f.number of full time staff and the number of volunteers.
7. Survey Capture
In all cases plans and surveys should be stored in the property folder of the Electronic Document Records Management (EDRM) system.
8. Valuation Approach
8.1 Fair Maintainable Trade
Heritage railways should be valued by reference to fair maintainable trade (FMT) (gross takings net of VAT). Historically, as regards trading elements, such as shops, cafes, bars etc., the cost of sales was deducted from gross takings before this income stream was added to the gross receipts of the railway operation itself. This stemmed from a time when such activities were very low key and potentially added very little to the overall operation. Given the expansion of such activities the total of all receipts in gross terms should be used to ascertain the FMT.
8.2 Loss making Hereditaments
With many railways no profit will be shown in the accounts. It does not necessarily follow that no rent would be payable. Frequently occupation is of value to the actual occupiers. In Bluebell Railway Ltd v Ball (VO), 1984 RA 113, Emlyn Jones found it was “inconceivable that the members of the society would not get together in order to raise money to pay a rent to the hypothetical landlord”.
8.3 Adjustment of Income
a. Preservation Societies
It is important that accounts are obtained in respect of all operations carried out on the hereditament being valued.
It is usual practice for the Preservation Society to form a Company to run the railway and to obtain a Light Railways Order. The relationship between the Company and the Preservation Society varies considerably; sometimes they are two entirely different entities, at others they are virtually one.
Unless it is patently clear that the Preservation Society exerts no influence/control over the operations of the railway, so leaving the Company alone to fulfil this function, the accounts of both should be aggregated to arrive at Gross Receipts.
b. Donations received
Most railways receive donations and, to the extent that they may be regarded as continuing on a yearly basis, they should be included as part of the Gross Receipts. Exceptional donations in any particular year should be discounted to a level more likely to be achieved year by year. Additional receipts through Gift Aid will also fall to be considered in this context.
c.Items of expenditure
Accounts provided will sometimes contain an item, or items, of expenditure not expected to recur each year. Such costs should be spread over an appropriate period of time, with the apportioned amount being charged against the relevant year’s accounts.
d. Depreciation and Sinking Funds
In considering depreciation and the provision of a sinking fund to renew certain of the tenant’s chattels (e.g. engines, carriages, signals etc), it should be remembered that as the object of many Societies is to preserve such items, their life and value may indeed be increased by high standards of maintenance.
e. Repairs and renewals to the landlord’s hereditament
Despite it being appropriate to allow for repair costs when valuing to RV, the hypothetical tenant’s obligation to repair the landlord’s hereditament does not of course extend to its renewal. Frequently, there is a considerable overlap between repairs and renewals, plus the difficulty of distinguishing one from the other.
If part of a structure is kept in thorough repair its life may be prolonged almost indefinitely, and this should be borne in mind particularly when considering items of replacement concerning those railways where preservation is regarded so highly.
Other than where a realistic sinking fund provision has appeared in the accounts over a number of years, and it is in respect of an appropriate future commitment, such allowances should not be conceded. In cases of difficulty, a submission should be made to the CCT.
f. Capital receipts
These receipts, such as sales of shares, should not be included in any income calculations.
g. Interest on any overdraft
Claims are sometimes made that interest on an overdraft should properly be allowed as an item of expenditure on the grounds that much of the railway’s total expenditure for the year is incurred during the winter months before the receipts from train fares start to flow in during the summer. Such expenditure should not be admitted for two reasons:
In theory it might involve a conflict with amounts allowed under the head ‘Tenant’s Share’.
In most cases, in fact, the ratepayers own the rateable hereditament, whereas in the rating hypothesis the rateable hereditament is deemed to be owned by the hypothetical landlord. One important consequence of this is that the hypothetical tenant would have available the capital which the owner-occupier has in fact expended on acquiring the property and which should be available to provide a sufficient margin to finance running expenses.
h. Voluntary labour
The argument is sometimes met that expenses should be notionally increased to take into account the voluntary services a Railway Preservation Society receives from its members.
The point being made that, were it not for those members, the Society would incur greater expenditure.
Most railways rely heavily on voluntary labour provided by members. In the great majority of cases voluntary labour is readily forthcoming year by year and, moreover, is provided free of charge. In no circumstances should allowable expenditure be increased to reflect the notional cost of such labour.
i. Tenant’s Share
It should be borne in mind that whilst occupiers of these hereditaments would aim to cover expenses, they are unlikely to seek a full commercial return by way of interest on capital, risk, etc. Whilst it is emphasised that such a consideration is one for the valuer to judge in the knowledge of all the relevant facts, it is suggested that a modest divisible balance need not automatically be assumed to be swallowed up by a ‘commercial’ tenant’s share. The valuer must assess the bid of the hypothetical tenant of the undertaking who will doubtless be compared with the actual occupier; the willingness of the latter to carry on in occupation may be material in the valuer’s mind when arriving at a valuation and the running of the railway may be the prime motive, not the making of a profit. In some cases the concept of profit may be secondary to the opportunity of running the railway, albeit not at a loss, for the benefit of railway enthusiasts.
8.4 Valuation Factors where only Gross Receipts known
Where receipts and expenditure information is not available, the following factors should be taken into account in deciding the appropriate rental percentage bid for each railway:
1.whether the railway is likely to be running at a profit or a loss;
2.whether the track is of standard BR gauge, light railway or narrow gauge;
3.the length of running track;
4.the complexity of signalling and points required to operate;
5.the number, size and condition of stations, sheds, signal boxes, bridges, viaducts, tunnels, embankments, cuttings, level crossings etc. to be maintained;
6.the number, size and condition of other buildings, such as museums, heritage centres etc;
7.the times of operation and services provided – for example whether summer season or school holidays only, or a standard passenger service is offered throughout the year;
8.whether there is evidence of abnormal trading in any one year, for example special events, anniversary celebrations or loan of “special” or famous name engines;
9.the relativity of gross income to track length - as in all tourist class properties the costs of operation are relatively fixed and therefore even a relatively small increase or decrease in receipts would result in a greater impact on profitability;
10.the number of employed staff and its ratio to voluntary labour (often a function of (6) above). It is accepted that the most likely occupier would be a preservation society and that this society would expect to trade with a reasonable degree of volunteer labour. Care should be taken in those cases where either no volunteer labour is used, or where the volunteer element is much larger than might reasonably be expected.
All other things being equal, and as a generality, ex-British Rail standard gauge lines will, in all regards (track, stations, general running costs and overheads) be more expensive to run and maintain, and therefore likely to be less profitable than a comparable narrow gauge railway.
8.5 Interface with other Classes
Particular caution should be exercised when considering the following:
1.Working Museums - a number of properties described as heritage railways are, in fact, more in the nature of working museums. Often centred around a former BR station, with yards, workshop etc., the length of running track can be extremely short, often a mile or less. These are almost invariably run by hobby groups/trusts but, if well located near centres of population or in holiday areas, can actually achieve very high visitor numbers despite the fact they only really show the engines “steamed up” and do not offer meaningful passenger journeys.
2.Tourist Attractions that include a range of other facilities and attractions besides a relatively short length of, invariably narrow gauge, track. The railway element itself is usually only a part, possibly a minority, of the total experience being offered.
In both these cases regard should be had to the wider view of tourist attractions. Whilst they remain relatively expensive operations to run the percentage bid adopted might well be above the usual range for heritage railways.
9. Valuation Support
All valuations should be entered onto the Non-Bulk Server (NBS) under the relevant Scat Code.
Additional support is available through:
Class Co-ordination Team for Leisure Attractions.
Practice note: 2017: Heritage railways
1. Market Appraisal
The Heritage Railway Association (HRA) represents the majority of heritage and tourist railways, tramways and railway preservation groups within both the UK and Ireland.
The Heritage Railway website highlights the following:
“Railway preservation is no longer a movement of dedicated railway enthusiasts; it is a big and growing industry and a key factor in tourism programmes in many areas. From the Great Little Trains of Wales which feed hundreds of thousands of visitors into the remoter and lovelier parts of the Principality to busy commuter lines such as the Paignton & Dartmouth Railway, Heritage Railways are thriving and thrusting in all directions.”
It reports that during 2013, heritage railways, tramways and museums carried 7.7 million passengers. In terms of income heritage railways brought in around £106 million. Train journeys accounted for 51% of this, 13% was from catering, 12% from shops and the remaining 24% mainly from workshops and charter trains.
The HRA emphasises the wider offer now provided by the industry, which includes:
Special catering arrangements - ranging from banquets to cream teas.
Heavy engineering workshops - made available for outside work.
Individual circumstances will vary considerably subject to the extent of the facilities available in any particular case. A common theme that is likely to be uppermost in the minds of all operators is the significant increase in the cost of coal in recent years. That said, a strong growth in income from other activities, such as catering, where there is scope for healthy profit margins, may well act to counter this.
2. Changes from the last Practice Note
There are no changes from the broad principles followed for the 2010 Rating Lists other than how receipts from trading elements are handled. These are now included, without adjustment for cost of sales, as part of the total gross receipts (net of VAT) of all activities on site.
3. Ratepayer Discussions
None at present.
4. Valuation Scheme
Valuation guidance on this class for 2017 is contained within RM : section 6 part 3 - S1085 : Leisure Attractions: Practice Note 1 : 2017.
Practice note: 2010: Heritage railways
This is an SRU Class. Responsibility for ensuring effective co-ordination lies with the Specialist Rating Units - for further information see RM: S6: Pt 1
The Special Category Code 128 should be used. As an SRU Class, the appropriate suffix letter should be S.
2. Valuation Guidance
Valuation guidance on these classes for 2010 is contained within RM :Section 6: Part 3 -1085
This property is valued using the non-bulk server. The manual can be accessed here
3. IT Support
The development a new facility on the Non Bulk Server (NBS) should enable input of factual data to achieve valuations that follow the recommended approach for heritage railways. All valuations should be entered onto the NBS under the relevant Scat Code.
Practice note 1: 2005: Heritage railways
This is an SRU Class. Responsibility for ensuring effective co-ordination lies with the Specialist Rating Units - for further information see RM: V2: S1
The Special Category Code 128 should be used. As an SRU Class, the appropriate suffix letter should be S.
Miniature Railways, Special Category Code 421, are not covered by this guidance.
2. Central Discussions
Discussions have taken place between CEO and the Heritage Railway Association. A consensus has been reached as to the method of valuation to be adopted for Revaluation 2005, although this is not binding upon individual member societies.
3. 1995 & 2000 Rating Lists
For both the 1995 and 2000 lists, the norm of rental percentages ranged between 3 - 6% of gross receipts. Regard was had to the limited rental evidence available and an analysis of accounts. Exceptionally, this could be extended by up to 0.5% at either end giving a minimum of 2.5% and maximum of 6.5%.
West Somerset Railway is an example of the least profitable, with low turnover against high costs and Snowdon Mountain Railway an example of the most profitable with high turnover against low costs.
4. Valuation guidance for 2005
Heritage railways should be valued by reference to fair maintainable trade (gross takings net of VAT) within a range 3 - 6%. In respect of trading elements, such as shops, cafes, bars etc., the cost of sales should be deducted from gross takings before this income stream is added to the gross receipts of the railway operation itself.
Wherever possible profit and loss accounts should be considered for the 3 years preceding the AVD, 1 April 2003. In many cases the financial year covering the 2002 summer season will be the most representative. Care must be taken to exclude factors and events unlikely to recur. In particular, for 2001, the increase or decrease in passengers as a resulting of the outbreak of FMD should be disregarded.
In the absence of full accounts, the factors as set out in paragraph 4.4 of the RM section should be taken into account in deciding the appropriate rental percentage bid for each railway.
The relativity of turnover between AVDs 1998 and 2003 should be considered. The RPI would suggest an average inflation rate of 11.5%, but heritage railways have been particularly affected by the costs of increasingly stringent Health and Safety requirements together with a steep rise in insurance premiums. Thus turnover will need to have risen at above the general rate of inflation to maintain the same level of rental bid as adopted for 2000. Where this has not been achieved, and there is no corresponding saving in expenditure, a reduced bid may take it below the minimum (3%) of the normal range.
5. Interface with other classes
Particular caution should be exercised when considering working museums and tourist attractions (as described in paragraph 5 of the RM section. In both these cases regard should be had to the wider view of tourist attractions. Whilst they remain relatively expensive operations to run the percentage bid adopted might well be above the 6% range maximum for heritage railways.