- converting a ‘qualifying building’ (QB) into ‘qualifying business premises’ (QBPs), or
- renovating a qualifying building that is, or will be, QBPs, or
- repairs to QBPs.
- for the cost of acquisition, extension or development of land and buildings;
- for the provision of plant and machinery which is a ‘fixture’ (within CAA 2001 s 173(1)), i.e. which becomes in law part of the building such as central heating, though of course such items may qualify as ‘integral features’ (within CAA 2001 s 33A) to which annual investment allowance (AIA) should be allocated in priority to plant and machinery qualifying for the writing-down allowance at 18%;
- in respect of premises used for fisheries and aquaculture, shipbuilding, coal or steel industry, synthetic fibres or the production of certain agriculture and dairy products; or
- to the extent that any grant, subsidy or State aid is received.
Example: BPRA relief: 45%
taxpayer
An office block is purchased by investors for £2 million for conversion
to a hotel. The cost of conversion is £10 million and the total cost of the
project of £12 million is financed by £6 million of investor capital and £6
million of bank finance.
The tax relief for 45% taxpayers is £4.5 million and so the net cash
invested is only £1.5 million, though of course the bank finance will need to
be serviced out of the rental income.
The availability of ‘sideways loss relief’ is restricted to £50,000 per annum following FA 2013. However, this does not apply to the extent that the loss relates to BPRA (see ITA 2007, s 24A(7)).
Allowances and charges
As noted, the initial allowance in respect of qualifying expenditure on a QB is 100%, though this may be reduced to a specified amount. Any balance will attract a writing-down allowance at 25% as long as the person is entitled to the ‘relevant interest’ (‘the relevant interest’ is the interest in the QB to which the person who incurred the expenditure was entitled when he incurred it) at the end of the accounting period or year of assessment and has not granted a long lease of the QB.
If the QB is sold before the person incurring the expenditure brings the building etc., into use or makes it available for letting, no allowances are due, and if any initial allowance has been made it is withdrawn. The purchaser of the relevant interest does not qualify for any allowances as they did not incur the expenditure.
A balancing charge may arise if a ‘chargeable event’ occurs within seven years of the first use of the property after conversion or renovation. Chargeable events include the sale, demolition, cessation of business use or the grant of a long lease. One of the Finance Act 2014 changes is that the period of seven years is reduced to five years for expenditure incurred on or after 1 April 2014 (corporation tax) or 6 April 2014 (income tax).
If the person entitled to BPRA has a trade, profession or vocation the allowance is treated as an expense and a balancing charge is treated as income of that trade, profession or vocation.
If the person entitled to BPRA has a property business, that is if the person is the landlord of the building, the allowance is treated as an expense and a balancing charge is treated as income of that property business.
Finance Act 2014 changes
The main Finance Act 2014 changes clarify the types of expenditure which qualify for relief and in general limit these to the actual costs of conversion or renovation and directly related professional fees as follows:
- building works;
- architectural or design services;
- surveying or engineering services;
- planning applications;
- statutory fees or statutory permissions; and
- other costs e.g. project management fees up to a cap of 5% of the qualifying expenditure.
A further Finance Act 2014 change is that instead of excluding expenditure simply by reference to CAA 2001, s 173(1) (see above), the expenditure is also defined by reference to a list. The list includes integral features and items such as fitted cupboards, fire or intruder alarm systems and sanitary appliances. In general, the items listed will qualify for relief either as integral features or as plant and machinery and so alternative allowances, including AIA, should be available.
Finance Act 2014 also introduces a time limit of three years from the time expenditure is incurred (expenditure is incurred in general when the obligation to pay becomes unconditional (CAA 2001, s 5(1)), for the work to be completed. It is understood that under some schemes expenditure would be incurred up-front but not actually expended for some considerable period of time.
Practical Tip :
If you or your client purchases or takes a lease of commercial premises in an assisted area which have not been in use for over a year, BPRA is a valuable relief and should not be overlooked.
Similarly, if part of existing business premises has been out of use for at least a year, BPRA may be available. The expenditure must be of a capital nature and in the main will be for building work or major repairs/refurbishment. It does not matter whether the premises are brought into business use by the person who holds the ‘relevant interest’ (the ‘relevant interest’ is the interest in the QB which the person who incurred the expenditure was entitled when he incurred it) or let to a third party, as long as the use is for the purposes of a trade, profession or vocation or as office accommodation.
