Introduction

The case of Hurstwood Properties (A) Ltd & Ors v. Rossendale Borough Council & Anor ([2021] UKSC 16) addresses the legality of sophisticated schemes employed by property owners to evade business rates on unoccupied commercial properties. The appellant, comprising local authorities Rossendale Borough Council and Wigan Council, challenged the respondent companies' (Hurstwood Group and Property Alliance Group Ltd) methods of avoiding liability for business rates through the creation of Special Purpose Vehicles (SPVs) and subsequent liquidation or dissolution of these entities. The core issue revolves around whether such schemes fundamentally undermine the legislative intent of imposing business rates on property owners.

Summary of the Judgment

The United Kingdom Supreme Court held that the schemes implemented by the respondents did not confer ownership of the unoccupied properties to the SPVs for the purposes of business rates liability. The Court emphasized a purposive interpretation of the relevant statutory provisions, concluding that the SPVs were created solely for the avoidance of business rates without any genuine commercial purpose. Consequently, the Court ruled that the original property owners remained liable for the business rates, invalidating the respondents' attempts to shift liability through these schemes.

Analysis

Precedents Cited

The judgment extensively references the Ramsay principle, originating from WT Ramsay Ltd v Inland Revenue Comrs [1982] AC 300, which critiques tax avoidance schemes that lack genuine commercial purpose. The Court also cited landmark cases such as Barclays Mercantile Business Finance Ltd v Mawson [2004] UKHL 51 and UBS AG v Revenue and Customs Comrs [2016] UKSC 13, which reinforced the purposive approach to statutory interpretation beyond tax legislation. Additionally, the Court discussed the doctrines from Prest v Petrodel Resources Ltd [2013] UKSC 34 regarding piercing the corporate veil, distinguishing between the concealment and evasion principles.

Legal Reasoning

The Court adopted a purposive approach to interpreting the Local Government Finance Act 1988, particularly sections 45 and 65(1), focusing on the legislative intent to prevent property owners from leaving commercial properties unoccupied to their financial advantage. It concluded that merely granting a lease to an SPV, devoid of genuine business operations or assets, did not transfer ownership for business rates purposes. The schemes were deemed to lack commercial substance, and the creation of SPVs was an artificial construct solely aimed at evading statutory obligations.

Impact

This judgment sets a significant precedent by clarifying the boundaries of business rates liability and the illegality of creating shell companies for avoidance purposes. Future cases involving similar schemes will likely reference this judgment to assess the legitimacy of SPVs and other corporate structures intended to bypass statutory obligations. Moreover, it reinforces the courts' willingness to interpret legislation in line with its purpose, ensuring that legislative intent is not subverted by artificial legal constructs.

Complex Concepts Simplified

Conclusion

The Supreme Court's decision in Hurstwood Properties v Rossendale Borough Council underscores the judiciary's commitment to enforcing legislative intent and preventing the misuse of corporate structures for avoidance purposes. By rejecting the schemes employed by the respondents, the Court affirmed that business rates are to be borne by those who genuinely control and benefit from the property, thereby preserving the integrity of the local taxation system. This judgment serves as a deterrent against similar avoidance strategies and reinforces the principle that legal structures cannot be manipulated to subvert statutory obligations.