Business rates and mandatory charitable relief

The Supreme Court has handed down an important judgment on the approach to mandatory charitable relief from rates. Dan Kolinsky KC analyses the ruling.

In LB Merton v Nuffield Health [2023] UKSC 18 the Supreme Court rejected Merton’s appeal and decided that Nuffield Health was entitled to mandatory charitable relief in respect of its gym at Merton Abbey. The gym was one of many health and fitness facilities operated by Nuffield Health, a registered health charity.

The important issue in the case concerned the approach to the public benefit requirement in charity law when making decisions about rating relief.

Section 43(6) of the Local Government Finance Act 1988 confers mandatory charitable relief where a hereditament is occupied by a charity and “wholly or mainly used for charitable purposes (whether of that charity or of that charity and other charities)”.

Merton contended that the use of the hereditament in question should be considered as a separate use from any other hereditament occupied by the charity and must qualify on its own as a use for charitable purposes.

In rejecting this approach the Supreme Court explained the public benefit requirement in charity law and traced the history of the rating provisions.

As to charity law, the Supreme Court emphasised that it was clear that where the public benefit requirement is met, all of the activities of the charity are carried out for public benefit (see paras 26-29). In charity law public benefit is examined by reference to the purposes of the charity and the manner in which the body fulfils the relevant purpose “overall rather than whether it does so in any particular place where its activities are carried on” (para 30-31).

As to the history, when mandatory charitable rating relief was first introduced in 1961, the change gave effect to the recommendations of the Pritchard Report (1959) which emphasised the need for simplicity, certainty and economy of administration. It had  also stressed the benefits of rating relief aligning with charity law [19].

In this case, the Supreme Court considered that the activities at Merton Abbey were directly for the fulfilment of Nuffield’s charitable purposes of promoting health through exercise [44].

Section 43(6) should be approached by way of a 2 stage enquiry.

First, whether the ratepayer is a charity or not. In this case, as Nuffield Health was a registered charity, that was the end of the first stage enquiry [49].

The second stage involved assessing as a matter of fact whether the hereditament is being used for the (necessarily charitable) purposes of the charity. The Supreme Court stressed that the second stage was “factual and not a question of charity law”. “It will not require the rating authority to don the cloak of the Charity Commission or the role of the Chancery judge to decide whether those purposes are charitable” [55].

Merton’s approach of just looking at what was happening at the hereditament was wrong. It was wrong to conduct “a second (sort of) charity analysis, not on the actual facts, but on the counter-factual and usually unreal assumption that the hereditament was the only site upon which the charity was seeking to fulfil its purposes” [57]. Parliament did not intend that counter-factual analysis. It intended the relevant analysis should proceed by reference to the general law of charity. That law assesses whether a body’s purposes are charitable by looking at its purposes and activities overall, not a site by site basis. [58]

Accordingly, as a registered health charity using the gym for the direct fulfilment of those charitable purposes, Nuffield Health was entitled to charitable relief. It had been common ground that the charity met the public benefit requirement across all of its activities. Even if the cost of membership at Merton Abbey was too high for those of limited means (the premise on which the main issue arose), its activities were charitable as those of limited means were not excluded from its overall activities.

The decision provides clarity on how charity law and rating relief align. it confirms that registered charities operating over multiple sites will be able to obtain relief without having to demonstrate that the activities on each site would have qualified as a charity in their own right.

Dan Kolinsky KC is a barrister at Landmark Chambers. Leading Matthew Smith of Maitland Chambers; instructed by Richard Langley, Nicola Evans and Olivia Peake at BDB Pitmans LLP) he represented Nuffield Health successfully in the Supreme Court, Court of Appeal and High Court.