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 currently capped at the first £1,000,000 of eligible expenditure – that incurred on qualifying plant and machinery or integral features. This rate is applicable for expenditure from 1st January 2019 to 31st March 2023. 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 was a tax allowance giving 100% tax relief on capital expenditure, up to an EU cap of €20million, when renovating a commercial building in an assisted area, which was unoccupied for at least 1 year - designed to help regenerate business in disadvantaged areas. If the full 100% allowances were not claimed in the year incurred, subsequent WDAs of 25% were available on a straight line basis of the original qualifying expenditure. Following 31 March (Corporation Tax)/05 April 2017 (Income Tax), BPRAs are now withdrawn.
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 many different forms and rates of allowances available, each with varied rules or criteria – not least the New Fixtures Rules on ‘second-hand’ purchases or Structures & Buildings Allowances - which 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 or Non-resident Landlord and so under corporation tax or as an individual or partnership, 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 and allows, but does not obligate, local authorities to levy a charge on new developments in England and Wales. 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 were available at a rate of writing down allowances (WDAs) of 100% per annum and so represented a good opportunity to significantly improve cash flow, through appropriate design, specification and procurement considerations. ECAs were restricted to very specific assets that either appeared on the relevant Energy Technology List, or Water Technology List, or met the criteria set out within these lists, where specific assets were not listed. ECAs could also be claimed as a tax credit if the short term position on claiming created a loss, upon surrender of the loss. This was particularly relevant to SPV situations where the investment created a loss in the first few trading periods. The Autumn Budget Statement on 29 October 2018 announced the withdrawal of ECAs as from 31 March (Corporation Tax) and 5 April 2020 (Income Tax) and so are no longer available.
First Year Allowances
Capital allowances are usually claimed through Writing Down Allowances (WDAs) – a certain percentage for each tax period – on a reducing balance basis over multiple years until the allowances are used up. First Year Allowances (FYAs) allow those claiming capital allowances to write off a much higher proportion of the allowances against their taxable profits in the year the expenditure was incurred – often 100% - before reverting to the default or standard WDAs for the remaining allowances (as applicable).
Freeports
Announced in March 2021 Budget Statement - Freeports provide a blend of generous fiscal incentives, including tax reliefs, customs benefits and wider government support to shorten/simplify planning requirements and reduce SDLT, Business Rates and employment costs to support bringing investment, trade and jobs to regenerate defined regions. Eight new Freeports in England (East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames) were announced. Following this, two new Green Freeports in Scotland (Inverness and Cromarty Firth and Firth of Forth) and two new Freeports in Wales (Anglesey and ‘Celtic’ - comprising Port Talbot & Milford Haven) have also been announced. The specific capital allowances measures for Freeports include:
- a boosted 10% rate for Structures & Buildings Allowances (SBAs) although to qualify the structure or building must be brought into use on or before 30 September 2026*; and,
- ‘enhanced’ capital allowance of 100% for Plant & Machinery - to qualify the expenditure must be incurred on or before 30 September 2026*.
These will apply to both main and special rate assets available for corporation tax and income tax purposes, as appropriate, to the entity incurring the costs within an applicable designated freeport zone.
Note* - In the Autumn Statement press releases (22 Nov 2023) it was confirmed the expiry date was to be extended to 30 September 2031, subject to Freeport/Tax legislation being amended.
Full Expensing & 50% First Year Allowance
Full expensing is a 100% First Year Allowance introduced by the Spring Budget 2023 applicable to main pool Plant & Machinery expenditure. It ONLY refers to expenditure by companies liable to UK Corporation Tax and incurred on new and unused assets on or after 01 April 2023. There are anti-avoidance measures that need to be considered too for ‘disqualifying arrangements’, a ‘special balancing charge’ and reference to the s.46 CAA2001 general exclusions.
Alongside the introduction of the full expensing measure for main pool Plant & Machinery assets, a 50% First Year Allowance was also introduced for assets qualifying for the special rate pool – Integral Features, Long Life Assets and insulation added to an existing building under s.28 CAA2001.
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 can often constitute an HMO. For taxation purposes, the defining feature of an HMO is that no one pays rent or license fee for the whole dwelling. HMOs have relatively few aspects benefitting from capital allowances, unless the property consists of a much larger development with significant common (circulation) areas.
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. The newer Structures & Buildings Allowances (SBAs – see below) have in part replaced IBAs in a more inclusive range of property uses, albeit at a slightly lower rate of 3%.
Integral Feature Allowances (IFAs)
IFAs were introduced from 1st /6th April 2008 and currently available at 6% 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 and were further reduced to the current rate of 6% per annum from April 2019. 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.
Repairs & Maintenance (R&M)
Expenditure on repairs or maintenance to keep a property in good order is not considered capital but a Revenue expenditure and so long as the works are 'like for like' replacement of existing items the costs are an allowable revenue expense generating a deduction at 100% from taxable profits in the same year. Where there is significant improvement in the nature of the asset, it will most likely be treated as capital expenditure and thus eligible to one or other form of capital allowances. Building refurbishment projects will typically incur a mixture of capital costs and revenue expenses, thus it is important to thorough analyse expenditure; segregating the costs into the appropriate categories to optimise the tax savings available.
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. These are different and distinct from the R&D Tax Credits – as the SME tax incentive and/or Research & Development Expenditure Credit (RDEC) if a Large Company.
Special Rate Allowance (S-RA)
This a temporary acceleration to Integral Feature, Long Life Asset and Thermal Insulation (s.28 CAA2001) expenditure (within Special Rate Pool) boosting the normal WDA rate from 6% to 50% as a ‘First Year Allowance’. It ONLY refers to expenditure by companies liable to UK Corporation Tax and on new expenditure incurred pursuant to a contract agreed on or after 03 March 2021 and expenditure incurred between 01 April 2021 and 31 March 2023. There are complex conditions and anti-abuse measures that need to be considered too.
Structures & Buildings Allowances (SBAs)
First introduced for new expenditure incurred on or after 29 October 2018, at 2% p.a. straight line relief over 50 years it effectively provides relief on all the remaining property expenditure after having claimed the PMAs/IFAs/LLAs/AIAs and Repairs as available. There are restrictions on certain Residential uses (notably Student accommodation/FHLs etc.) and SBAs cannot be accelerated using the AIAs (see above). In April 2020 the rate was increased to 3% per annum over 33⅓ years. Additionally, there is a ‘boosted rate’ of 10% over 10 years for properties located within designated Freeports tax sites (see above).
Super-Deduction (SD)
This a temporary acceleration to Plant & Machinery expenditure (within Main Pool) boosting the normal WDA rate from 18% to 130%. It ONLY refers to expenditure by companies liable to UK Corporation Tax and on new expenditure incurred pursuant to a contract agreed on or after 03 March 2021 and expenditure incurred between 01 April 2021 and 31 March 2023. There are complex conditions and anti-abuse measures that need to be considered too.
Writing Down Allowances (WDAs)
Introduced as part of the CAA2001, these provide the mechanism for claiming the capital allowances available against the various forms of allowances as above. For default PMAs the current rate of 18% per annum. IFAs (and Special Rate Pool) are ordinarily available at 6% p.a. - both on a reducing balance basis. Between April 2021 and March 2023 these default rates have been boosted for Corporation Tax payers by the ‘Super-Deduction’ (at 130% for PMAs) and ‘Special Rate Allowance’ (at 50% for IFAs). These accelerated rates do not apply to claims subject to income tax.
