2 America Square, an office block leased by a Virgin Islands-based company, is at the centre of the court case. Photograph: Brian Anthony/Alamy View image in fullscreen 2 America Square, an office block leased by a Virgin Islands-based company, is at the centre of the court case. Photograph: Brian Anthony/Alamy Financial sector The London office, the empty boxes and the £1bn tax loophole Exclusive: How a court case over an unoccupied office block could end a widely used tax avoidance scheme
Prefer the Guardian on Google From the outside, the seven-storey building at 2 America Square looks like any other office block in the heart of London’s financial district.
Located about half a mile from Tower Bridge, one might expect it to be a hive of commercial activity, teeming with employees holding important meetings. However, much of the property is home not to staff vying for their next bonus, but to stacks of nondescript black boxes arranged in neat lines.
The building, leased by a Virgin Islands-based company called 48th Street Holdings Ltd, has found itself at the centre of a court case that has finally signalled the end of a tax avoidance scheme believed to have cost local authorities more than £1bn.
For almost two decades, companies in England have been exploiting a legal loophole to avoid paying business rates on unoccupied commercial buildings.
The controversial practice dates back to 2008, when the last Labour government changed business rates rules. This meant occupiers of vacant buildings no longer qualified for a 50% discount on the levy.
View image in fullscreen Boxes such as these enabled companies to claim three-month rate holidays on unoccupied properties. Photograph: City of London Corporation However, they were entitled to claim a three-month rate holiday at the end of each tenancy – and the “box shifting” scheme was born.
With commercial property owners facing higher bills, a lucrative “rate mitigation” industry emerged. Historically, this typically involved boxes being moved into the empty space at the end of the three months and back out after just six weeks. The building then became unoccupied again and the clock was reset, allowing the owner to claim another three-month rate-free period.
This cycle continued, designed to cut the rates owed by up to 67%, until a new long-term tenant could be found. It has been costing one London council an estimated £35m a year since the pandemic, when the number of claims for empty property relief doubled.
However, last month a landmark ruling by three court of appeal judges looks to have sounded the death knell for box shifting. They ruled that the scheme “cannot amount to beneficial occupation”.
The case was brought by the City of London Corporation against 48th Street Holding Ltd and a second company, Principled Offsite Logistics Ltd (POLL), which provides “rate mitigation” services.
48th Street paid £27.6m for a lease on the office block in 2019 before it brought in POLL to save £111,475.30 in rates across a series of three-month periods in 2022 and 2023.
POLL describes itself as “the largest and most reliable” provider of “empty business rates mitigation” in the UK and is jointly owned by a Labour councillor from North Hertfordshire.
It claimed by 2021 to have already saved its clients “£500m” in rates and that “every council in the UK now totally recognises Principled as being robust in every way”.
That bold claim followed a significant high court win in 2018, when PO…