Louise Clark offers her analysis of the Supreme Court’s recent ruling on charitable rate relief.
Key points
- An unregistered charity’s charitable status can be determined by its activities
- Public benefit requires analysis of a ratepayer’s activities as a whole
- Provision of benefit to the rich may be as charitable as provision to the poor
In Nuffield Health v Merton London Borough Council [2023] UKSC 18; [2023] PLSCS 94, the Supreme Court has unanimously dismissed an appeal against the respondent’s entitlement to relief from business rates in respect of its members-only gym at Merton Abbey.
The background
The respondent was a registered charity whose purposes were:
“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”.
It pursued those purposes through the provision of gym facilities, including the gym at Merton Abbey and the operation of private hospitals and clinics. The facilities at Merton Abbey – swimming pool, spa pool, sauna and gym – were mainly restricted to fee-paying gym members with limited services available to non-members. In April 2019 the standard membership was £80 per month, reducing to £71 per month for those who committed to a longer period of membership.
The respondent claimed the mandatory relief from business rates under section 43 of the 1988 Act from 1 August 2016 when it acquired Merton Abbey gym from Virgin Active. The council refused relief. It argued that, because the membership fees were at a level which excluded persons of modest means from using the facilities, Merton Abbey gym was not used for charitable purposes as the requirement for public benefit under section 4 of the 2011 Act was not satisfied.
The respondent challenged the decision. At first instance the judge decided that the question was whether the respondent was using Merton Abbey gym for the pursuit of its charitable purposes, viewed in the context of its activities as a whole. Consequently, the respondent succeeded even if persons of modest means were excluded from Merton Abbey gym. A majority of the Court of Appeal agreed. Merton appealed a second time.
The law
Section 43(5) and (6)(a) of the Local Government Finance Act 1988 provides for a mandatory 80% relief from business rates where two conditions are satisfied:
(i) “the ratepayer is a charity or trustees for a charity”; and
(ii) the premises are “wholly or mainly used for charitable purposes”.
A registered charity is conclusively presumed to be a charity under section 37 of the Charities Act 2011. However, if the ratepayer is not registered, the rating authority needs to consider whether it meets the test for charitable status, ie whether it was established for exclusively charitable purposes within the descriptions in section 3 of the 2011 Act. Such purposes include the prevention or relief of poverty and the advancement of education, religion, health or saving lives, the arts, human rights and animal welfare.
As well as falling within section 3 of the 2011 Act, the charitable purposes must be for the public benefit under section 4, which requires consideration of their nature and scope. Do the purposes fall within section 3 of the 2011 Act and are they available to a sufficient section of the public, so that the provision of the benefit is for a public rather than a private purpose?
A charity’s purposes will be referred to in its written constitution, but if there is none or it is inconclusive, they can be determined by a review of the ratepayer’s activities and the purposes they serve. When the question whether a body is a charity turns on whether its purposes satisfy the public benefit requirement, it is necessary to consider the activities of the charity overall not simply one particular place where its activities are carried on R (on the application of Independent Schools Council) v Charity Commission for England and Wales [2011] UKUT 421 (TCC).
While a purpose which excludes the poor is not likely to be charitable, the provision of benefits to the rich members of a section of the public may be as charitable as the provision of those benefits to the poor (Income Tax Special Purposes Commissioners v Pemsel [1891] AC 531.
In considering the second condition of section 43, the rating authority must consider how the premises are, in fact, being used. If they are being used for the charitable purposes of the charity or for incidental activities sufficiently closely connected with those purposes, then the condition will be satisfied. If, by contrast, the activities are not sufficiently connected with those purposes – such as fundraising or investment – the second condition will not be met.
The decision
The Supreme Court dismissed the appeal. It was misconceived to argue that, for a multi-site charity, section 43 of the 1988 Act required an analysis of whether the activity at each site was charitable.
The first condition of section 43 of the 1988 Act was satisfied. The respondent was a registered charity and its purposes were irrebuttably presumed to be charitable in all the places they were carried on and, viewed overall, to satisfy the public benefit requirement.
The Merton Abbey gym was used for the direct fulfilment of the respondent’s charitable purposes. The rich were as much a part of the section of the public benefited by the respondent’s charitable activities as the poor who, in the round, were not excluded from benefit, even if they were at Merton Abbey gym.
The respondent used the Merton Abbey gym wholly or mainly for its charitable purposes and was entitled to mandatory relief from business rates under section 43 of the 1988 Act.
Louise Clark is a property law consultant and mediator
