Charitable rate relief made simple

Relief from non-domestic rates for properties occupied by charities has a long history in the rating system in England and Wales. Prior to 1961, this relief was applied at the discretion of local authorities but, since that date, the relief has been mandatory, provided that the conditions set out in statute are met. The relief is financially significant because it has been at 80% of the liability since 1990, having been at 50% prior to that.  The conditions governing the relief are set out in section 43 of the Local Government Finance Act 1988 and are that the relief must be applied where “the ratepayer is a charity or trustees for a charity and the hereditament is wholly or mainly used for charitable purposes (whether of that charity or of that and other charities)”. The decision of the Supreme Court in Nuffield Health v Merton London Borough Council [2023] UKSC 18; [2023] PLSCS 94 gives practitioners clear and helpful guidance as to the tests to be applied to determine whether these conditions apply. The case Nuffield Health is a registered charity which operates hospitals and fitness and wellbeing centres. The charitable purposes of Nuffield, set out in its articles of association, are “to advance, promote and maintain health and healthcare of all descriptions and to prevent, relieve and cure sickness and ill health of any kind, all for the public benefit”.  One of Nuffield’s fitness centres is at Merton Abbey in the London Borough of Merton. Merton Borough Council is the billing authority for non-domestic rating purposes and took the view that the Merton Abbey gym did not qualify for charitable rate relief because the fees being charged for membership and use of the gym (£80 per month for standard membership) were set at a level which excluded those of modest means.  Merton considered that this exclusion meant the public benefit requirement, which is a condition of charitable status, was not satisfied. Nuffield Health challenged Merton’s refusal to grant charitable rate relief and succeeded both at first instance and in the Court of Appeal. Merton appealed to the Supreme Court against the decision of the Court of Appeal. The Supreme Court dismissed Merton’s appeal and set out a two-stage test to be applied by billing authorities when determining whether to grant charitable rate relief, and by ratepayers and their advisers when determining whether charitable rate relief should apply. The two-stage test The first stage of the enquiry is whether the ratepayer is or is not a charity.  If the ratepayer is a registered charity, registered with the Charity Commissioners, that registration will be sufficient to answer the first stage enquiry affirmatively. If the ratepayer is not a registered charity, then the first stage enquiry must be determined by reference to the ratepayer’s constitution and, if there is no constitution, or if the constitution is inconclusive, by reference to a review of its activities and purposes.  In such circumstances, to qualify as a charity, the activities and purposes of the ratepayer, when viewed overall, must include an assessment of whether the public benefit requirement is satisfied. The second stage enquiry applies only where the ratepayer is a charity and is whether the hereditament is in fact being used, wholly or mainly, for the charitable purposes of the charity, or of that charity and other charities.  The assessment of “purposes” for this part of the test includes all purposes set out in the articles of association or constitution, and includes other activities lawfully carried on by the charity which may not directly serve those purposes, but are very closely aligned to them.  In this context, provision of living accommodation at a site to support the use of that site was viewed as sufficiently closely aligned to qualify for relief, but use for solely fundraising purposes was not.  The Supreme Court’s judgment makes clear that this second stage test does not involve any assessment of charity law. Instead, Lord Briggs and Lord Sales described the test as follows:  “All that the rating authority has to do is to ascertain what is or are the (necessarily charitable) purposes of the charity, and then decide whether in fact the sole or main use of the hereditament is in furtherance of those purposes, or sufficiently closely connected with their fulfilment.  The purpose or purposes of the charity will usually be apparent from its constitution or (if registered) by a simple online inspection of the register maintained by the Charity Commission. The question whether that purpose or those purposes are fulfilled by the sole or main use of the hereditament is a factual matter.” Welcome clarity The test set out by the Supreme Court is, therefore, a relatively simple one and does not involve any review, on a site-by-site basis, of whether the public benefit purposes of the charity are satisfied at a particular property.  Instead, the test is whether the ratepayer is a charity and, if they are a charity, whether the use of the property satisfies the charity’s purposes. This simple and relatively straightforward approach should assist both ratepayers and billing authorities. The question of approach to charitable relief in the case of unoccupied properties is not considered as part of the judgment, which makes clear that the policy context in relation to rates on unoccupied properties, as analysed in Rossendale Borough Council and another v Hurstwood Properties (A) Ltd and others [2021] UKSC 16; [2021] EGLR 28, is “entirely different”.  But most cases relating to application of charitable relief should be relatively straightforward to resolve considering this guidance, without requiring, as the decision says, “the rating authority to don the cloak of the Charity Commission or the robe of the Chancery judge”.  Blake Penfold is a business rates consultant at blakepenfold.com Image © Danielle Cerullo/Unsplash