Chancellor Hits Property Taxation in Last Budget

Gordon Brown deals a blow to all businesses owning or investing in their premises in announcing the phasing out of industrial and agricultural building allowances

Brown Budget07

Ten years on ...but the message is the same, as the Property Sector is once again been targeted as a 'soft touch' in Gordon Brown's 2007 Budget Statement.   In his first budget The Chancellor dramatically increased stamp duty, this time capital allowances have been dramatically altered and will cost business dearly as the changes come into affect over the next few years.

Phasing out of Industrial Building Allowances

The surprise withdrawal of Industrial Buildings Allowances (IBAs) Hotel Allowances (HAs) and Agricultural Buildings Allowances (ABAs) will impact all of us in time, as those affected seek to recover the lost tax relief. 

Described by Brown as "poorly targeted" IBAs had helped to drive the growth of British Industry since 1945, yet seemingly UK manufacturing and farming no longer warrant support. 

Politics aside, this is a severe blow to industry as well as property investors, who lease such premises.  

Other key sectors affected include Hotels, Logistics and Storage, Utilities and Infrastructure.  Given the need for investment in the hotels throughout London, the South East and South West in order to meet the needs of 2012 Olympics the timing of these reforms are particularly ill-timed.

The relief will be phased out over the next four years such that in 2008/09 the writing down allowances will reduce from 4% to 3%, then to 2% in 2009/10 and 1% in 2010/11 and thereafter nil.  The Government has set out some transitional measures to cover all transactions from Budget Day, unless contracts were entered into prior to the 21st March 2007.

Plant & Machinery Allowances

The rate of writing down allowances for plant and machinery are to be reduced from 25% , per annum to 20% from 2008/9.  This change will not affect the quantum of allowances available, but will reduce the cashflow benefit of allowances to all businesses that incur expenditure on their property.

Long-Life Assets

Allowances on long-life assets, those with an economic life of 25 years or more, are to increase from 6% to 10%.  Anticipated to cost the Treasury £230m this is more likely aimed at encouraging those in the utility, oil, gas and pharmaceutical sectors from claiming (often involving extensive negotiation) the higher plant and machinery allowances.  

Business Premises Renovation Allowances

At last BPRAs are to commence from 11 April 2007.  Originally introduced by the Finance Act 2005, these 100% first year allowances are to be given on conversion or renovation expenditure upon qualifying business premises.  There are two changes to the legislation as first passed;

  • disadvantaged areas are now defined as Northern Ireland and the areas specified as development areas by Statutory Instrument 2007/107.
  • Premises for certain sensitive trades, such as fisheries, ship building, coal and steel industries, synthetic fibres and certain agricultural uses are to be excluded.

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