Tax Bite – A sideways look at capital allowances – part 2

This week we continue our theme of looking at some of the extra bonuses that can be offered from capital allowances with a look at a particular type of relief known as “Business Premises Renovation Allowances” (“BPRA”).

This relief was introduced in 2005 to provide an incentive to bring derelict or unused properties in disadvantaged areas back into use.  BPRA gives an initial 100% capital allowance on expenditure incurred in relation to the conversion of buildings into business premises in these areas.  In addition, the relief is available on all types of capital expenditure, including things like building internal walls, floors, doors, windows etc., which would normally not qualify under standard capital allowances rules.

Under current rules, the property must be retained for at least 7 years from it first being brought back into use (due to fall to 5 years from 1 April 2014) or else a proportion of the allowances will be clawed back.  After that time, however, it is possible that the building can be sold without any balancing charge, and without an adverse impact upon the investor’s capital gains tax position (Note: there may restrictions if the property is sold on at a loss).

Owing to the front-loaded timing of the allowances, it is likely that the investor will have a tax loss in the early years whilst the property is converted.  But, as noted in last week’s Tax Bite, for investors who are individuals there is the possibility of a sideways loss relief claim against their other income.

The Government has stated that the scheme will continue until April 2017.  Please speak to us if you have clients looking to renovate or invest in schemes to convert properties in these types of areas.  As BPRA is a very generous relief there are often hidden traps and pitfalls that need to be considered (although these mainly relate to abusive strategies).

 

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