FB: Enhanced SBA for Freeport Qualifying Expenditure

FB: Enhanced SBA for Freeport Qualifying Expenditure

A new 10 percent rate for SBA is introduced as part of the incentives surrounding the new Freeport Tax sites.

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Harinder Soor

Partner – Claims and Incentives

KPMG in the UK

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To further incentivise taxpayers looking at investing in Freeport tax sites, a new 10 percent rate for the Structures and Buildings Allowance (SBA) has been introduced. However, there are several conditions taxpayers should be aware of in order to ensure they are obtaining the benefit of the relief. Most taxpayers will be familiar with SBA, introduced back in 2018, which provides tax relief, currently at three percent per annum, for expenditure on buildings and structures which would previously not have qualified for capital allowances. However, in the 2021 Budget, the Chancellor introduced an enhanced rate of SBA relief at 10 percent per annum (giving a full deduction over 10 years rather than 33 1/3), for expenditure incurred before 30 September 2026 provided it relates to a building within a ‘Freeport tax site’.

In order to qualify for this enhanced SBA, the location where the building or structure is, must be a designated Freeport tax site at three key dates:

  1. When the construction of the building or structure begins;
  2. When the qualifying expenditure on the building or structure is incurred, and
  3. When the building or structure is first brought into qualifying use.

Conditions two and three also require these events to be before 30 September 2026.

However, work on existing buildings or structures to convert, renovate or to carry out incidental repairs to those that were already located in freeport tax sites, prior to their designation, will still be able to qualify for the enhanced relief. The taxpayer incurring the qualifying expenditure needs to be within the charge to income or corporation tax.

Finally, the taxpayer must complete an SBA allowance statement, which states that the taxpayer wants the expenditure to be freeport qualifying expenditure.

In contrast to the Freeport’s enhanced plant and machinery (P&M) relief, the enhanced SBA is not restricted to companies within the charge to corporation tax. It also applies to a wider variety of business activities, including landlords who will not be able to benefit from the ‘Super Deduction’ or the P&M Freeports allowance. However, the standard exclusions for SBA still apply, so property in residential use will not benefit from the relief, and landlords should take care when granting leases to ensure that they retain the benefit rather than passing it over to their tenant.

The Finance Bill legislation provides for further regulations to be issued to make further provisions about the scope of the enhanced SBA relief and the requirements surrounding it, so watch this space.

Overall, this should be a strong incentive for investment in Freeports, considerably increasing cash flow of relief. To provide an illustration, assuming a discount rate of six percent for someone investing £10 million in a building qualifying for SBA in 2021, the net present value (NPV) of the cash saving from claiming the freeport SBA would be £1.8 million, compared to just £1.1 million at the standard three percent rate, with an increased cash benefit of c£133,000 in the first year alone.

Lastly, the obvious question from all of this is ‘Where are these freeport tax sites located?’ but unfortunately that question is yet to be answered. Although the locations of the first eight Freeports have been announced, the freeport tax sites are somewhat narrower and their location is yet to be revealed.

For further information please contact :

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