Charitable relief from business rates on property is the most valuable tax relief available to the sector.

Worth over £2 billion of tax savings per year, charities are usually entitled to a mandatory relief and may also be able to claim a further discretionary relief from their local authority.

Mandatory charitable relief

Charities are eligible for a mandatory 80% relief from rates on their business properties, but for this to apply, the charity must be the rate payer and use the property wholly or mainly for charitable purposes (the term ‘charitable purpose’ is defined in the Charities Act 2011).

It can be difficult in some cases to determine whether a property is ‘wholly or mainly’ used for charitable purposes or not. The term ‘wholly or mainly’ is broadly considered to mean ‘more than half’ but be mindful that different local authorities may have their own interpretation of this.

When looking to secure mandatory charitable relief from business rates, there are some key things to be aware of regarding the use of your property:

• Charities that carry out commercial activities, including through commercial trading subsidiaries, should be wary of the ‘wholly or mainly’ rule. Local authorities may wish to look at details such as the floor space used for commercial purposes or turnover generated from commercial activities to make their decision.

• For charities that operate retail shops, the sale of donated goods in these shops will qualify as charitable purposes if the proceeds of sale of the goods are applied towards the charity’s purposes. Charity shops that sell both donated and bought-in goods may need to be able to demonstrate that their sales are mainly made up of donated items. You will also need to carefully plan, if you are using a trading subsidiary to run the activity, which entity is the tenant as the relief only applies to charities. It can be possible to still use a subsidiary and structure the arrangement in order to obtain charity rates relief.

• Lettings themselves do not generally qualify as charitable purposes, unless the letting itself falls within the charitable purposes of the charity.

Discretionary relief

At the discretion of the local authority, charities may be able to claim a 100% discretionary rate relief from business rates. This relief will depend on the policy of the individual local authority and the resources available to them, but if granted, would top up the 80% mandatory relief to a full 100% discount.

Charities should seek to make a case to their local authority of the value that they provide particularly to the local area to maximise their opportunity to obtain the discretionary relief. Non-profit organisations that are not charities may also be able to claim discretionary relief from their local authority if they meet certain criteria.

Vacant properties

If a charity is the rates payer for a vacant property, the property will be entitled to full relief from business rates as long as the next use of the property is expected to be for charitable purposes.

Charities should take care with vacant properties that are used for non-charitable purposes (such as lettings or diversifying into other activities) as business rates may become fully payable on these after the first three months of vacancy. The economic impact of COVID-19 has put many properties in this position and so it is important to check your own charity’s circumstances to prevent any unexpected liabilities.

Other considerations

Over recent years we have seen more challenges from different local authorities where rates relief has previously been given and thought to be secured. Sometimes restructuring of your organisation can give an opportunity for questions to be raised about relief and changes in your activities as mentioned, but often without any changes at all your relief can be challenged and may not be as secure as you may have thought.

Charities that do pay rates, even at 20% , may still be incurring a significant cost to the overall organisation. It is often worth reviewing rateable values etc. with qualified surveyors to see if cost savings can be made.

The government are currently carrying out a wide fundamental review of rates in England, and proposals such as shortening the periods of review may impact the charity sector.

Further advice and support

While charitable relief from business rates can be highly valuable, it’s important to keep this under review as your use of property evolves or changes to avoid falling foul of the rules.

If you have a question about business rates and the reliefs outlined in this article, please get in touch using the form below.