I thought CAA rules are not allowed to be more lax than EU (SERA) rules. So how are they allowed to make exemptions to the 500ft rule?
Because the SERA rules explicitly permit them to do so:
(f) Except when necessary for take-off or landing, or except by permission from the competent authority, a VFR flight
shall not be flown:
(1) over the congested areas of cities, towns or settlements or over an open-air assembly of persons at a height less
than 300 m (1 000 ft) above the highest obstacle within a radius of 600 m from the aircraft;
(2) elsewhere than as specified in (1), at a height less than 150 m (500 ft) above the ground or water, or 150 m
(500 ft) above the highest obstacle within a radius of 150 m (500 ft) from the aircraft.