Is a box sufficient to comply with the ‘occupation’ to avoid paying non-domestic rates on the empty property?
The High Court considered the application of anti-avoidance principles to established practices in non-domestic rating (NDR), specifically addressing the "box scheme" approach to vacant property.
Background:
This case concerns a dispute between the City of London and 48th Street Holding Ltd., involving a rate mitigation scheme (RMS) run by Principled Offsite Logistics Ltd. (POLL) on vacant office premises in London owned by 48SHL. The RMS aims to avoid paying NDR on the empty property.
The standard operation of such schemes involves a three-month initial exemption period (IEP) for vacant property. After this, the owner grants POLL a short (six-week) lease, during which POLL places boxes in the property, claiming this constitutes "occupation" for rating purposes. After six weeks, the lease ends, the boxes are removed, and the owner claims a fresh three-month exemption period. POLL is then paid a share of the resulting NDR savings.
48SHL engaged POLL to operate this RMS at their vacant premises in the City of London, which subsequently claimed a debt under Regulation 20 of the Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989, totalling £111,475.30, plus interest.
The core legal issue is whether POLL's six-week placement of boxes legally constitutes "occupation" under the relevant regulations sufficient to trigger a new exemption period.
Decision:
The High Court dismissed the claim, finding the RMS effective. The Court did not find that the City of London is entitled to the sums claimed. The Judge outlines the relevant statutory and regulatory framework, such as Sections 43 and 45 of the Local Government Finance Act (LGFA) 1988 or the Rating (Empty Properties) Act 2007.
The judges noted that the Ramsay principle and the Hurstwood case do not invalidate the RMS in question. The Ramsay principle is a general one and doesn't automatically strike down every avoidance scheme. A transaction can still be effective in achieving a tax advantage, even if undertaken for that purpose.
The Court agreed with the claimant that the Supreme Court's decision in Hurstwood necessitates viewing the earlier POLL v Trafford case through the lens of the Ramsay principles concerning tax avoidance schemes. However, this doesn't automatically mean POLL v Trafford was wrongly decided. The central question becomes the statutory purpose of the empty rates regime.
The Judge upholds the reasoning in POLL v Trafford regarding the existence of rateable occupation, finding that POLL's actions satisfy the established legal tests, even if the primary motivation is rate mitigation. The Judge emphasises the importance of adhering to precedent and the difficulties of introducing subjective notions of "productive use" into the well-established legal framework of rateable occupation.
The further Court highlighted the Non-Domestic Rating (Unoccupied Property) (England) (Amendment) Regulations 2024, which extended the continuous occupation period required to trigger a new exemption from six to thirteen weeks. The judgement interprets this legislative change as an implicit recognition by the government that intermittent occupation schemes were operating effectively under the previous regulations.
Implications:
This case clarified that the type of RMS involving short-term occupation with minimal items (e.g., boxes) can constitute a rateable occupation. This means that property owners with vacant commercial premises may continue to utilise such intermittent occupation schemes to trigger fresh three-month exemption periods from empty rates liability, potentially significantly reducing their NDR burden. The Court distinguishes the present scenario from the more aggressive avoidance schemes involving artificial steps and potential illegality.
The introduction of this case is very detailed and sets some of the important general aspects. For instance, the introduction points out that attempts to avoid taxes are as old as taxation itself, with property taxes having a particularly long history, and that rating, as a form of property tax, dates back to the 17th century, although this was initially based on property occupation. More recently, however, the focus has shifted to taxing owners of vacant property to incentivise bringing it back into use.
