UK Tax Update - 2008 Budget Changes to Property Taxation

Update to budget changes including capital allowances, brownfield tax incentives and landfill tax exemption

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Disappointing Darling!

51mins of rather bland rhetoric. Growth, Investment, Fairness and Tax Simplification all featured high in the Budget special edition 'word bingo'. 

Sadly the 107 Budget Notes and 200 plus pages of the Budget Report exposes the truth that the changes announced or confirmed in the 2008 Budget Statement are far from simplifying!

Phasing out of Industrial Building Allowances

Following the announcement in last year's budget the phased withdrawal of Industrial Buildings Allowances (IBAs) Hotel Allowances (HAs) and Agricultural Buildings Allowances (ABAs) was confirmed and draft legislation published.  These changes will from April 2008 sharply reduce the tax relief available to industry as well as property investors, who lease such premises.  Additionally Hotels, Logistics and Storage, Utilities and Infrastructure sectors all stand to lose out on valuable tax relief with consequential impacts to consumers and inflation as these businesses will seek to recover the costs through their trading activity.

Additionally Enterprise Zone Allowances (EZAs) will also be withdrawn by April 2011.  Although EZAs will not be gradually phased out in the same manner as IBAs.

Integral Features

Budget Note 7, ratified this new category of capital allowances.  Expenditure on the designated assets on or after 1 April 2008 will be subject to these 10% allowances via the Special rate Pool (see later) instead of plant & machinery allowances.

Assets to be classified as Integral Features include:

  • Electrical systems (including lighting)
  • Cold Water systems
  • Space or water heating systems, powered systems of ventilation, air cooling or air purification and any floor or ceiling comprised in such systems
  • lifts, escalators, and moving walkways
  • external solar shading
  • active facades

A new component to these rules is that replacement expenditure will on 50% or more must be allocated to the Special Rate Pool and so not be eligible for a revenue deduction.

Plant & Machinery Allowances

The rate of writing down allowances for plant and machinery will reduce to 20% from April 2008.  This change will not affect the quantum of allowances available, but will slow the cashflow benefit of allowances to all businesses that incur expenditure on their property.

Special Rate Pool

Allowances on long-life assets, those with an economic life of 25 years or more, are to increase from 6% to 10% from April 2008 subject to the Finance Bill 2008.  Long Life Asset expenditure together with expenditure on thermal insulation and integral features will be allocated to a new Special Rate Pool - from which writing down allowances of 10% per annum on a reducing balance basis will be available.

North Sea Regime

Introduction of 100% First Year Allowances on new expenditure on long-life assets and mid-life decommissioning by oil and gas companies operating in UK or on UK Continental Shelf.  Existing long-life assets will get 10% WDAs as above Special Rate Pool.

Natural Gas, Biogas & Hydrogen Refuelling Equipment

Extension of 100% First Year Allowances on expenditure on Natural Gas, Biogas and Hydrogen refuelling equipment for expenditure on or after 1 April 2008.

Annual Investment Allowance

The Finance Bill 2008 will introduce the new AIA providing relief on the first £50,000 of qualifying expenditure by all tax payers carrying on a qualifying activity.   Following the consultation process a HMRC has decided to give the tax payer freedom of allocation of their expenditure.

Enhanced Capital Allowances (ECAs)

The 2007 Budget announced a review the classes of equipment that can qualify for Enhanced Capital Allowances (ECAs) for good quality combined heat and power (CHP).  This was to ensure that there are ECAs to cover all the necessary equipment for CHP facilities to use solid refuse fuel.  The 2008 Budget announced that this review has been completed and the ECA qualifying criteria will be revised and made by Treasury Order prior to Summer 2008 Parliamentary recess.

Water Technology Criteria

  • waste water recovery and reuse systems

Energy Technology Criteria

  • compressed air master controllers
  • compressed air flow controllers
  • heat pump dehumidifiers
  • white LED lighting

First Year Tax Credit

This tax credit is payable against losses arising from Enhanced Capital Allowances for Companies to be introduced from 1st April 2008.

Loss-making companies investing in energy and water efficient technology will be able to claim a payable cash credit of 19% of the loss surrendered, subject to a cap of the higher of the companies total PAYE & NIC liability in the period for which the loss is surrendered, or £250,000 (maximum of £1,315,789 total qualifying loss to be surrendered).

There are also anti-avoidance measures to clawback relief where assets are sold within a FOUR YEAR clawback period.

Landfill Tax

As anticipated Government has announced the landfill tax exemption for waste from contaminated land will be phased out by 1 April 2012.  This is a slight extension to the original proposed end date of 2010, although the deadline for making new applications remains 30 November 2008.  URGENT ACTION required on any regeneration project where contaminated land is involved.

Confirming previous Budget announcements that from 1 April 2008 and until at least 2010-11, the standard rate of landfill tax will increase by £8 per tonne annually.

Landfill Tax becomes £32 per tonne from 1 April 2008 and £40 per tonne from April 2009.

It was also announced that lower rate will be frozen at £2.50 per tonne in 2009-10 and confirmed that the Government expects the standard rate to continue to increase beyond 2010-11.

Land Remediation Tax Relief

The Budget confirmed the previously announced intention of Government to recycle the revenue from phasing out the landfill tax exemption for waste (as above) from contaminated land to the extended land remediation relief. 

However Government has deferred the introduction of these new measures for expenditure on long-term derelict land and to the removal of Japanese knotweed that subject to draft legislation in Summer 2008 will be available from 1 April 2009.

To understand how these changes will impact you and your projects please contact us.

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