BUDGET 2012 – CONSULTATION CHANGES CONFIRMED – NEW RULES FROM 2012
21st March 2012
The Chancellor continues to put businesses at the forefront of his growth strategy with the systematic reduction of corporation tax rates but the news for the property world is less exciting. A raft of measures have been introduced to balance the books and promote incentives but these tend to be across a broad spectrum rather than any one or two stand out changes - but maybe that’s not a bad thing.
For capital allowances, we have little to shout about or report on further from the far reaching changes to the fixtures rules arising from last year’s consultation and draft legislation, save a few tweaks and some further leasing anti-avoidance. The Finance Bill 2012 to be issued shortly will undoubtedly tell us more.
Fixtures Rules
Last year the government sought to radically shake up the second hand fixtures legislation to apparently stop a tax leakage of revenue and ensure everyone plays by the legislative rules both technically and practically. Inadvertently, or not as the case may be, new build projects were also brought into the changes as we are talking ‘fixtures’ but the thrust of the change was to provide more certainty over past capital allowances claims and those available in the future to others.
In essence, HM Revenue & Customs are bringing in two new requirements; firstly that all owners of property need to have pooled their qualifying property expenditure, at some point before a sale, for a future owner to be able to make a claim (but not within a prescribed timeframe as previously suggested); and secondly that a seller and buyer enter into a S198 type agreement, ‘a record of agreement’ as to the value of the capital allowances to be transferred. The first requirement is subject to a transitional phase of two years from April 2012 but the second requirement will be active immediately from April 2012.
No further significant notices were made in this regard in the Budget save a small addition to the proposals that will make it possible for a new owner of property to make claims for Plant & Machinery Allowances where there are unrelieved Business Premises Renovation Allowances regarding past claims.
Please see our main article in January 2012 for further detail.
Viewpoint
Our view remains that this will only seek to complicate the already detailed and heavy compliance burden of tax payers where adequate existing legislation was already in place. It will however focus the minds of all parties to transactions to proactively deal with this issue which has in the past been, all too often, swept under the ‘contract rug’ for another day. Capital Allowances are set to become a critical part of the acquisition process and can no longer be ignored by lawyers or agents to be dealt with ‘after the event’.
Enterprise Zones
A welcome addition to the 2011 Budget announcements was the introduction of several, indeed many more than that, new Enterprise Zones around the country which will attract certain tax and growth benefits. Many, but crucially not all, of these Zones and/or certain assisted areas within them will attract 100% capital allowances on qualifying Plant and Machinery.
As with the Fixtures changes little has moved with regard to the proposals in this Budget although further designated Zones have been added since the initial proposal to include the London Royal Docks, three Scottish Zones and Deeside in North Wales in addition to the initial raft of English areas announced last year.
A full list of the Zones and corresponding capital allowances is to be issued shortly.
Please see our main article in January 2012 for further detail.
Viewpoint
This is a big step forward in the right direction by the government to promote business and property growth in key areas around the United Kingdom. We hope the forthcoming Finance Bill builds on the initial announcements and makes the capital allowances available to as many assisted areas as possible. The capital allowances incentives are not as generous as previous Enterprise Zone Allowances (as these used to provide 100% relief for all expenditure on commercial properties in the Enterprise Zones of that era) but are still a welcome incentive to invest.
Other Provisions
Enhanced Capital Allowances
Enhanced Capital Allowances
The Government will also be extending the availability of first year tax credits for expenditure on certain environmentally beneficial plant and machinery that generates a loss for a further five years to April 2018.
Business Premises Renovation Allowances
Further to Budget 2011 the Business Premises Renovation Allowances Scheme will be extended for a further 5 years from April 2012 to April 2017 with amendments in secondary legislation to ensure compliance to current state aid rules.
Feed-in tariffs and Renewable Heat Incentives
Again, further to Budget 2011 expenditure on plant and machinery for which tariff payments are received under the renewable energy schemes introduced by DECC (FITs or RHIs) will not be entitled to enhanced capital allowances. In addition, expenditure on solar panels will be designated as special rate expenditure (i.e. 8% per annum on a reducing balance basis) for capital allowances purposes. The changes will generally apply for expenditure incurred on or after 1 April 2012 but for expenditure incurred on Combined Heat and Power technologies it will apply from 1 April 2014.
Gas Refuelling Equipment
From April 2013, the Government will extend the existing 100 % first-year capital allowance for gas refuelling equipment for two years to 31 March 2015.
Fuel Efficient Cars
From April 2013, the Government will extend the 100% First Year Allowance for businesses purchasing low emissions cars for a further two years to April 2015. The carbon dioxide emissions threshold below which cars are eligible for the First Year Allowances will also be reduced from 110 grams/kilometre to 95 grams/kilometre, and leased business cars will no longer be eligible for the First Year Allowance.
From April 2013, the carbon dioxide emissions threshold for the main rate of capital allowances for business cars will reduce from 160 grams/kilometre to 130 grams/kilometre. The threshold above which the lease rental restriction applies will also reduce from 160 grams/kilometre to 130 grams/kilometre.
Anti-Avoidance
Legislation will be introduced in Finance Bill 2012 to ensure that the total amount of capital allowances received by lessees under long funding leases will equal their net “capital” expenditure under that lease. This measure counters arrangements where lessees under long funding leases sought to avoid including amounts received connected to the lease, which are not otherwise brought into account for tax purposes, within the specified disposal formula for long funding leases. The changes will apply to disposal events for long funding leases occurring on or after 21 March 2012.
Plant and Machinery Leasing
Continuing the Governments aim to crack down on perceived tax avoidance, legislation will be introduced in Finance Bill 2012 to make the capital allowances anti-avoidance rules more effective. This aims to work by restricting plant and machinery allowances where there is an ‘avoidance purpose’ to transactions, or where transactions are part of an avoidance scheme/ arrangement tightening the prior ‘sole or main benefit test’.
In August 2011, the Government announced that new legislation would include the repeal of an exception from the anti-avoidance rules, where the plant or machinery is acquired from a manufacturer or supplier. However, the legislation that will be included in Finance Bill 2012 will not make this particular change in full; the exception will still apply to expenditure incurred on or after 12 August 2011, as long as it is not incurred as a result of a relevant transaction that has an avoidance purpose.
Other Measures
Rate Changes – As first announced in Budget 2010, from April 2012, the main pool rate will decrease from 20% to 18% and the special rate pool with decrease from 10% to 8% both on a per annum reducing balance basis. Additionally the 100% immediate write off Annual Investment Allowance will decrease from £100,000 to £25,000 per annum on a pro-rata basis.
Abolition of Reliefs – In line with the report by the Office for tax Simplification legislation will be introduced in Finance Bill 2012 to repeal the tax relief for Safety at Sports Grounds and Flat conversion Allowances from April 2013.
Land Remediation Tax Relief
Despite also being included in the Office of Tax Simplification’s list of reliefs to be abolished, following the consultation responses, the Government has decided retain Land Remediation Tax Relief.
This valuable tax relief provides investors and developers with an enhanced corporation tax deduction for the remediation of contaminated land or buildings. This can include the removal of asbestos or other harmful toxins, the eradication of Japanese Knotweed or the clearing of a site from prior industrial use.
Viewpoint
These changes cover a wide range of bases from incremental improvements to energy efficient asset tax reliefs to the correction of double incentives due to the wide take up of tax relief for feed- in tariffs.
The anti-avoidance legislation continues a never ending theme to both crack down on perceived injustices to the Revenue coffers and to bring the avoidance rules in line from other parts of the Taxes Acts, and consistency has to be no bad thing.
We applaud the reversal of the potential repeal and abolition of both the Business Premises Renovation Allowances and Land Remediation Tax relief legislation as they are valuable incentives to the brownfield industries. Although not key aspects to all projects, it has taken years of hard work and campaigning from the tax service industry to inform and highlight the substantial benefits these tax reliefs can bring to a project. These tax reliefs are starting to bite among property professionals and we believe that, together with the recent changes to planning rules, they add considerable weight to the financial viability of many inner city brownfield development projects.