Glossary of Terms

A comprehensive guide to all the jargon, key words and phrases relating to property taxation

Annual Investment Allowance (AIA)

These allowances are given at the rate of 100% but capped at the first £250,000 of eligible expenditure – that incurred on qualifying plant and machinery or integral features. This rate is applicable for expenditure from 1st January 2013. Any surplus expenditure over and above the capped amount would continue to be eligible under one of the other qualifying heads of claim, as set out below.

 

Business Premises Renovation Allowance (BPRA)

BPRA is a tax allowance, introduced into CAA2001 by the Finance Act 2005, and became effective in 2007.  BPRAs give 100% tax relief on capital expenditure, up to an EU cap of €20million, when renovating a commercial building in an assisted area, which has been unoccupied for at least 1 year.  It is designed to help regenerate business in disadvantaged areas.  If the full 100% allowances are not claimed in the year incurred, subsequent WDAs of 25% are available on a straight line basis of the original qualifying expenditure.  Following a consultation in 2013, HMRC is seeking to alter other aspects to limit BPRAs from perceived abuses.  These measures could include limiting the project duration for the completion of works, and the potential to claim other fee costs.

 

Capital Allowances Act 2001 (CAA2001)

Whilst depreciation is applicable for UK accounting purposes, at present there is no ability to depreciate assets for tax purposes (tax depreciation). Instead the UK tax regime provides some relief on investment in capital assets through Capital Allowances, which are governed by the Capital Allowances Act 2001 (CAA2001).  The legislation enables UK taxpayers to obtain tax relief for expenditure on certain fixed assets. However, they are not always straightforward. There are different forms and rates of allowances available and these can be changed unexpectedly in the annual Budget statement or in new Finance Acts.

 

Capital Allowances

Capital allowances is the generic title for a suite of tax reliefs available against capital expenditure by a taxpayer, whether as a company and so under corporation tax or as an individual, partnership or off-shore entities, where income tax applies.  Some of these allowances relate to patents and know how, but the majority relate to real estate expenditure, whether LIFT Community health, PFI/PPP or ‘pure’ investment propositions.  The key aspect is the cash flow benefit of properly optimising the available capital allowances to enhance the after tax return on investment, and the cash flow advantage of reduced tax payments.

 

Community Infrastructure Levy(CIL)

A levy (tax) intended to replace s106 agreements made under the Planning Act 1990. CIL was introduced by the Planning Act 2008 it allows, but does not obligate (until April 2015), local authorities to levy a charge on new developments. The charge is applied on a m2 basis and can be varied dependent on location and type of use/property. The receipts from CIL must be used to fund infrastructure. As a local charge, local authorities can choose how they implement it, so as to balance the local need for infrastructure to support ongoing development.  

 

Enhanced Capital Allowances (ECAs)

These are available at a rate of writing down allowances (WDAs) of 100% per annum and so represent a good opportunity to significantly improve cash flow, through appropriate design, specification and procurement considerations.  ECAs are restricted to very specific assets that either appear on the relevant Energy Technology List, or Water Technology List, or meet the criteria set out within these lists, where specific assets are not listed.  ECAs can also be claimed as a tax credit if the short term position on claiming creates a loss, upon surrender of the loss.  This can be particularly relevant to SPV situations where the investment creates a loss in the first few trading periods.  For further details of the assets that may qualify, reference should be made to www.eca.gov.uk which sets out all the relevant criteria and up to date approved products.

 

Houses in Multiple Occupation(HMO)

HMO is an abbreviation for Houses in Multiple Occupation, as defined by s254-264 of the Housing Act 2004.  Any home is an HMO if 3 or more people live there from more than one household, and there are shared washing or cooking facilities or toilets.  A household is defined as a single person or members of a family living together.  The house must not be used for any purpose other than accommodation and at least one person must pay rent for the accommodation.  The property must be the main residence of the occupants.  Student shared housing often constitutes an HMO.  For taxation purposes, the defining feature of an HMO is that no one pays rent or license fee for the whole dwelling.

 

Industrial Building Allowances (IBAs)

For the accounting period ending 31 March 2011, IBAs attracted 1% relief per annum, albeit on the base cost (i.e. structural costs not incorporated in any of the above).  Historically these were at 4% for 25 years, giving over time 100% relief on qualifying industrial buildings.  The last Government decided to abolish IBAs and began phasing these out in 2008, such that the rates of relief have stepped down from 4%, 3%, 2%, and 1%.  After 31 March 2011 they ceased to exist and yielded no further benefit.  The nature and specific use of the property is key to determine if IBAs are available.

 

Integral Feature Allowances (IFAs)

These are the newest form of allowances only designated from 1st /6th April 2008 and currently available at 8% WDAs via a Special Rate Pool.  The Finance Act 2011 confirmed a reduction of the WDA rate from 10% to 8% per annum from April 2012.  IFAs relate to specific assets, being:

  • Lifts,
  • Heating air conditioning & ventilation,
  • Hot & cold water installation
  • Electrical installation (categorisation easily misunderstood)
  • Brise soleil
  • Thermal insulation added to existing buildings

 

Land Remediation Tax Relief (LRTR)

This deals exclusively with qualifying remediation expenditure by companies although, where LLP structures are used, companies that are Partner members may still be able to benefit in respect to their relative share.  LRTR attracts tax relief at 50% for trader/developers (100% base cost allowable as a trade expense) or 150% for owners/investors holding assets as capital, whereas no other tax relief typically covers such works.  The rules changed significantly from 1st April 2009 to restrict certain natural contaminants but extend the relief to include ‘remediation of long term derelict land’.

 

Long Life Assets (LLAs)

These also attract relief at 10%, as IFAs, and are held within the Special Rate Pool.  The Finance Act 2011 again confirmed a reduction of the WDA rate from 10% to 8% per annum coming in April 2012.  LLAs as the name implies relate to PMA or IFA asset expenditure, where the asset has an expected useful economic life of 25 years or more.  The majority of commercial projects have relatively little or no LLAs and these more typically relate to large industrial or utility type of businesses such as Water Companies or those in the Petrochemical sector. 

 

Machinery

'Individual, or collection of, machines that may have been installed wholly in connection with the occupiers' industrial or commercial processes (a machine is an apparatus used for a specific purpose in connection with the operation of the entity)' - As defined in the RICS Valuation Standards - Global & UK: 7th Edition (referred to as the Red Book).

 

Plant

'Assets that are inextricably combined with others and that may include items that form part of the building services installations specialised buildings, machinery and equipment' - As defined in the RICS Valuation Standards - Global & UK: 7th Edition (referred to as the Red Book).

 

Plant & Machinery Allowances (PMAs)

These are available at a rate of writing down allowances (WDAs) of 18% per annum on a reducing balance basis, operating from a ‘General Pool’ in your tax computation. PMAs are the most common of all capital allowances and will be found, to varying degrees in ALL commercial property as well as in large scale residential schemes – particularly core areas. Again the Finance Act 2011 confirmed reducing these to 18% WDA from 1st /6th April 2012 for Corporation Tax Payers and Income Tax Payers respectively.

 

Research and Development Allowances (RDAs)

These allowances are available by virtue of Section 437 CAA2001.  The legislation defines expenditure qualifying for 100% relief for research and development activities or provision of facilities for research and development (R&D) activities.  The R&D must be in relation to an existing trade or in pursuit of a new trading activity.  Although only one such activity can claim the expenditure, as may be relevant – i.e. to prevent double claiming.  If the full 100% allowances are not claimed in the year incurred, no subsequent writing down allowances will be available.

 

Writing Down Allowances (WDAs)

Introduced as part of the CAA2001, these provide the mechanism for claiming the capital allowances available.  They were originally set at 25% per year until April 2008, whereby they were reduced to 20%.

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