Would a Rates Mitigation Scheme for Vacant Properties Trigger a Qualifying Use for Structures and Buildings Allowances?
- Bryan Crawford
- May 16
- 5 min read
Updated: May 20
In a recent High Court judgment, a widely used rates mitigation scheme involving minimal, intermittent occupation of vacant property was found to be effective for non-domestic rates (NDR) purposes.
The ruling confirms that temporary occupation schemes are effective for NDR purposes under England's current legal framework, provided the transactions are genuine and meet common law occupation requirements.
However, what qualifies as ‘occupation’ for NDR purposes poses very different challenges for property owners attempting to meet the conditions of non-residential use for Structures and Buildings Allowances (SBAs).
Rates Mitigation Scheme – Case Summary
Case: City of London v Principled Offsite Logistics Ltd & Anor [2025] EWHC 1130 (KB) Date: 15 May 2025
Court: High Court of Justice Claimant: The City of London Corporation Defendants: (1) 48th Street Holding Ltd (48SHL), (2) Principled Offsite Logistics Ltd (POLL)
Case Background:
The property at 2 America Square, London EC3N 2LU was subject to a rate mitigation scheme.
POLL leased the property for six weeks after the expiry of a three-month exemption period.
POLL placed boxes on the premises, then vacated, seeking to trigger a further three-month exemption for the property owner (48SHL).
The City of London challenged the scheme, arguing it should be disregarded under the Ramsay principle, citing the Hurstwood case.
POLL relied on established case law and the fact that Parliament had not amended the statutory definition of 'occupation' despite widespread awareness of such schemes.
The NDR at stake was £111,475.30 and POLL was entitled a share of the NDR savings achieved (20%).
Decision:
The court upheld the scheme, finding POLL's temporary occupation to be effective rateable occupation. The Ramsay principle was distinguished, and the court emphasized that the statutory framework for NDR had not been altered to exclude these schemes.
Structures and Buildings Allowances (SBAs) – A Different Story
SBAs are a form of capital allowances enabling businesses to deduct construction and improvement costs of non-residential buildings.
Relief applies at:
3% per annum (standard)
10% per annum in designated Special Tax Sites (e.g., Freeports)
So, qualifying expenditure of £1,000,000 will give a standard annual allowance of up to £30,000 for 33 1/3 years and depending on tax rates (e.g. 25%) save cash of £7,500 per annum.
Key SBA Conditions:
The building’s first use after qualifying expenditure must be for non-residential purposes.
The person claiming must carry on a qualifying activity (e.g., a UK property business).
A complicating factor in practice is that SBA entitlement can be triggered suite-by-suite or floor-by-floor, with each part of the building potentially having a different claim start date depending on when each part is let (or used for an ordinary trading business) which frequently creates tracking challenges, even with the simplification rules.
Important Distinction:
The landlord’s qualifying activity (such as a property letting business) is what matters for SBA eligibility.
The tenant’s use determines non-residential status, but the tenant does not need to carry on a qualifying activity themselves.
Letting a building to a charity is acceptable for SBA, as long as the landlord is engaged in a qualifying activity and the use by the charity is non-residential.
Arrangements involving a normal commercial rent-free period should not normally prevent an SBA claim.
Where the Rates Scheme & SBA Diverge
While rate mitigation schemes might succeed for NDR purposes, a similar scheme would likely fail for SBA claims, for several reasons.
Potential HMRC Challenge Areas:
1. Disclosure of Tax Avoidance Schemes (DOTAS)
The DOTAS rules do not apply to business rates but do for corporation and income tax purposes.
When a tax scheme is promoted and standardised, with fees linked to the tax savings, it could fall within DOTAS hallmarks.
Notifiable schemes are not automatically disallowed but attract scrutiny and carry more significant compliance reporting and risk - especially if there's a lack of genuine commercial purpose.
2. General Anti-Abuse Rule (GAAR)
GAAR is designed to counteract abusive tax arrangements that exploit legislation contrary to its spirit.
A short-term lease (e.g., six weeks) to trigger SBA with no real economic activity would be a strong GAAR candidate.
HMRC would argue Parliament intended SBA to encourage genuine capital investment and economic activity, not just a paper entitlement.
3. SBA-Specific Anti-Avoidance – s270IB CAA 2001
s270IB explicitly nullifies arrangements where the main purpose (or one of the main purposes) is to create SBA entitlement that wouldn’t otherwise exist.
A six-week lease, purely to 'tick the box' for SBA, could fall foul of this rule.
4. Insignificant Use
SBA rules allow HMRC to disregard 'insignificant' use.
Token activity, like placing a few boxes in an office, carries the risk of being ignored for SBA purposes, unlike for NDR where physical occupation is key.
A property business relying on rents from a contrived lease agreement for NDR purposes is also likely to raise questions on reasonableness and commerciality for SBAs.
5. Temporary Disuse vs Cessation
SBA allows claims to continue during temporary disuse (e.g., between tenants) but the past use cannot be insignificant.
Insignificant is not defined in the legislation which means HMRC will have lots of room to manoeuvre to challenge claims on this point if (1) to (4) fails.
No SBA Scheme Just RMS
A claimant could probably argue that lots of the targeted anti-avoidance rules (1) to (3) don't apply to a scheme that is designed and targeted towards business rates. The fact that an SBA claim may ensue is by chance and not design.
The difficulty here is the "Ramsay principle" which is a legal approach whose core idea is based on a "purposive interpretation of legislation". The High Court considered this for the purposes of NDR but when the same test is applied to the arrangement as a whole for SBA purposes then a different outcome is entirely possible.
The bottom line is this, the RMS structure is designed to occupy the property with the least amount of economic activity as possible whereas SBAs are designed to reward genuine commercial use.
Conclusion
While business rates mitigation schemes have found success through temporary, minimal occupation, SBAs are subject to a far stricter qualifying framework. Claims hinging on token use, short-term leases, or contrived arrangements are likely to be:
Disregarded under SBA-specific anti-avoidance (s270IB)
Challenged under GAAR and DOTAS frameworks
Denied on the basis of 'insignificant use' and non-genuine temporary disuse
Landlords engaging in genuine commercial lettings - even with rent-free periods - remain safe. But claims reliant on schemes (even designed for another purpose) through minimal activity should expect to be challenged by HMRC.
And remember, you are not losing SBAs on qualifying works to those properties that have still to be let/used - you are simply deferring the start date of any claim until they are - so this is all about timing.
