Enhanced Structures and Buildings allowances in Freeports
Published 3 March 2021
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Who is likely to be affected
Businesses incurring qualifying expenditure on non-residential structures and buildings within Freeport tax sites from the date the Freeport tax site is designated until September 2026.
General description of the measure
This measure will introduce an enhanced rate of Structures and Buildings Allowance (SBA), available for businesses on qualifying expenditure for the construction of new, and renovation of existing, non-residential structures and buildings within Freeport tax sites.
The enhanced SBA will be available for qualifying assets brought into use on or before 30 September 2026, and after the date each Freeport tax site is designated. The enhanced rate of SBA will be at 10% on a straight-line basis.
Policy objective
SBA relieves construction costs for new structures and buildings used for qualifying purposes. This supports business investment in constructing new structures and buildings and the improvement of existing ones.
The enhanced SBA for Freeport tax sites is designed to provide an additional incentive for businesses to invest in structures and buildings within Freeport tax sites.
Background to the measure
On 10 February 2020 the government published a consultation on Freeport policy, in respect of its plans to introduce up to 10 Freeports in the United Kingdom, following its departure from the European Union.
Freeports are intended to support its policy of levelling up the towns, cities and regions of the United Kingdom.
The government published a consultation response on 7 October 2020, which provided initial detail of the tax reliefs it intended to offer to encourage investment in Freeports.
This was followed by a Freeport bidding prospectus on 16 November 2020, which included plans for the introduction of the tax reliefs to be offered.
Detailed proposal
Operative date
The measure will have effect for qualifying expenditure where the first contract for construction of the relevant structure or building was entered into on or after the date the Freeport tax site is designated.
Current law
Current law for SBA is included in Part 2A Capital Allowances Act 2001, inserted by SI 2019/1087.
Proposed revisions
Part 2A will be amended so that the enhanced rate of relief is 10% per year from the operative date for Freeport tax sites. This reduces the time it will take to relieve qualifying expenditure from 33 and one third years to 10 years.
To qualify for the relief, the structure or building must be brought into qualifying use on or before 30 September 2026.
The legislation will allow for just and reasonable apportionment of qualifying expenditure for structures and buildings which are partly within and partly outside the Freeport tax sites.
Summary of impacts
Exchequer impact (£m)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| Empty | Empty | Empty | Empty | Empty | Empty |
The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at the next fiscal event.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
There is no impact on individuals as this measure only affects businesses. This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts for those in groups sharing protected characteristics. The measure applies only to Great Britain, so there will be no Northern Ireland impacts.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on businesses incurring qualifying expenditure on non-residential structures and buildings within Freeport tax sites.
This measure will help to stimulate business investment in Freeport tax sites by providing an incentive for businesses to invest in non-residential structures and buildings. Businesses will need to assess their capital allowance entitlement for non-residential structures and buildings within Freeport tax sites, and to claim a deduction in computing their taxable profits.
One-off costs could include a business having to spend time to make themselves aware of the change and upskilling staff. There are expected to be no continuing costs.
Where civil society organisations invest in non-residential structures and buildings in Freeport tax sites, they may choose to comply with evidence requirements so that, when they dispose of the asset, any subsequent owner may claim if entitled to do so.
This measure is expected overall to improve businesses’ experience of dealing with HMRC as claims will be filed over a shorter period, reducing their time spent on tax administration.
Operational impact (£m) (HMRC or other)
This change will require HMRC to alter IT systems along with other operational changes and costs are estimated at £2.6 million.
Other impacts
Other impacts have been considered and none has been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax returns and through communications with the affected taxpayer population. Freeports governance bodies will also need to monitor and evaluate business activity in each Freeport.
Further advice
If you have any questions about this change, please contact Joe Layzell on Telephone: 03000 589 347 or email: joseph.layzell@hmrc.gov.uk.