The Chancellor made a number of surprising announcements in the Budget today
which will affect most taxpayers.
Reform of the capital allowances regime | Empty properties and land remediation
| "Expensive" cars | Protecting the environment
Reform of the capital allowances regime
The Chancellor today announced significant changes to the capital allowances
Phased withdrawal of industrial buildings allowances, hotel buildings
allowances and agricultural buildings allowances over the next four years.
The indication is that writing down allowances will be scaled back to 3%
from April 2008, 2% from April 2009, 1% from April 2010 and 0% from April
2011. It is unclear how this will impact the availability of writing down
allowances in respect of assets previously acquired during their tax life.
To pave the way for abolition, balancing adjustments and the recalculation
of writing down allowances in respect of balancing events occurring on or
after 21 March 2007 are withdrawn, other than in certain limited
Reduction in the rate of allowances for fixtures integral to a building
from 25% to 10% from April 2008, subject to a consultation process;
Reduction in the rate of allowances for plant and machinery from 25% to
20% from April 2008, and;
Increase in rate of allowances for long life assets from 6% to 10% from
In addition to the above changes, the introduction of a new Annual Investment
Allowance for investment in plant and machinery up to £50,000 from April 2008
was announced along with the extension, for a further 12 months, of the
temporary 50% rate of FYA for small enterprises. North Sea oil and gas ring
fence activities will also retain their existing capital allowances treatment.
The rationale for the above reforms is to remove outdated and unjustified
distortions in the tax system, but they will penalise property owners and
occupiers that have based investment decisions on the availability of these
allowances. The hardest hit businesses are likely to be those in the hotel,
manufacturing, infrastructure and transportation sectors where heavy reliance
has been placed on the availability of industrial building and hotel allowances
as well as gaining relief from attractive rates of tax depreciation on plant and
machinery assets. The measures are also likely to focus such businesses on
identifying plant and machinery assets that might otherwise have been ignored in
favour of claiming industrial buildings allowances, for example, as well as
looking more closely at differentiating between “building fixtures” and chattels
or other fixtures.
Empty properties and land remediation
The Chancellor today announced an incentive to encourage property investors
to bring empty commercial property back into use. A 100% capital allowance
(Business Premises Renovation Allowance) will be offered to companies or
individuals that incur spend on or after 11 April 2007 in renovating business
premises that have been empty for a year or more, and which are located in
certain disadvantaged areas. The announcements enhance the current relief
available and extend the application of the relief to include offices and shops.
A consultation has also been announced with a view to considering whether
Land Remediation Relief should be extended to include long term derelict land,
land contaminated by Japanese Knotweed and remediation undertaken specifically
in relation to planning permissions.
The Chancellor today announced the proposed removal of the expensive car
rules and their replacement with a system based on cars’ CO2 emissions; up to
165g/km to be treated in the same manner as other plant and machinery in the
general pool and an adjusted rate of writing down allowance for cars with CO2
emissions over 165g/km. The lease rental restriction formula was also proposed
to be replaced with a uniform fixed percentage rate of disallowance.
This measure is not unexpected and represents both a simplification of the
outdated previous rules as well as a drive towards a greener system of relief.
Protecting the environment
The Chancellor today announced a series of proposed changes to the existing
enhanced capital allowances regime, including:
Introduction of a payable tax credit for losses resulting from capital
expenditure on energy saving technologies, water efficient technologies and
the cleanest biofuel plant to ensure both profit and loss making firms have
an incentive to invest;
Introduction, subject to State Aid clearance, of a 100% first year
allowance for biofuel plants that meet certain qualifying criteria and which
make good carbon balance inherent in their design;
Review of classes of equipment that can qualify for enhanced capital
allowances for good quality Combined Heat and Power to ensure that the
scheme includes all necessary equipment for Combined Heat and Power
facilities to use solid refuse fuel, and;
Addition, from 2007, of vehicle wash water reclaim units, efficient
industrial cleaning equipment and water management equipment for mechanical
seals to the water technology list.
We welcome these changes as part of the Government’s package of incentives
designed to encourage environmentally sound behaviour.