Councils ask Supreme Court to thwart SPV solution to empty property rates

The Supreme Court is being asked to rule that the leasing of unoccupied premises to special purpose vehicles in a bid to obtain relief from non-domestic rates constitutes a tax avoidance scheme. The use of SPVs is one way that property owners have sought to avoid paying rates on empty properties, but the method is under attack by two local authorities whose challenge has been unsuccessful in the lower courts. At the outset of the appeal, Lord Reed said that the Supreme Court will ultimately rule on whether the scheme “works in law or not”. Lord Reed, Lord Hodge, Lord Briggs, Lord Kitchin and Lord Leggatt are being asked to decide whether a number of developers should still be liable to pay non-domestic rates for periods when they leased their unoccupied properties to SPVs on the basis – argued by Rossendale Borough Council and Wigan Council – that either the leases were prearranged tax avoidance schemes or the SPVs can be disregarded by a “piercing of the corporate veil”. The methods used by the property owners in this case involved seeing to avoid liability to non-domestic rates when the properties were unoccupied by granting short leases to SPVs, under which they became liable to pay the relevant taxes. No taxation payments were ultimately made by those SPVs as they were then either wound up or struck off from the register of companies. Last year, in Rossendale Borough Council v Hurstwood Properties (A) Ltd and others [2019] EWCA Civ 364; [2019] EGLR 20, the Court of Appeal found in favour of the property owners, ruling that it was not open to the courts to pierce the SPVs’ corporate veil and that the leases could not be disregarded. Roger Cohen, a partner in real estate disputes at Bryan Cave Leighton Paisner, said: “Empty property rates is a tax on failure; the failure of the owner to find a profitable use for the premises or a tenant to pay a rent. Empty property rates are charged at the same level as rates paid by occupiers. Imagine having to pay rates equal to half the rent for premises you can neither let nor use.” Since March 2020, reliefs have been available to cushion some ratepayers against the economic consequences of the pandemic. However, these reliefs are temporary measures. “The bigger picture, pre-Covid and post-Covid, is that there are empty buildings for which rates are payable by the person entitled to possess the premises,” Cohen added. “No wonder that affected ratepayers look to mitigate their liabilities. Reputable companies have entered into arrangements which might not have been adopted but for empty rates. In England, mitigation can be achieved using a variety of techniques. “Hitherto, the leasing strategy using SPVs has been upheld on the basis that the court decides liability for rating based on the objective facts and not whether or not there is a subjective intent to mitigate the liability. “The Supreme Court now has an opportunity to treat business rates like other taxes and limit the scope for mitigation, notwithstanding the character of the tax on failure which is empty property rates. “The councils want the Supreme Court to apply some sticking plaster to stop the loss of rates income. What is really needed is a fairer method for charging empty properties.” The court will reserve judgment and give a decision in writing at a later date.   To send feedback, e-mail jess.harrold@egi.co.uk or tweet @estatesgazette Photo by Michael Jaeger/imageBROKER/Shutterstock