331 Accelerated capital allowances in relation to construction or refurbishment of certain industrial buildings or structures

Summary

This section provides for accelerated capital allowances, by way of industrial building (initial) allowance and accelerated writing-down allowances (free depreciation), in respect of capital expenditure incurred in the qualifying period on the construction or refurbishment of certain industrial buildings or structures (factories and hotels) in the Temple Bar Area.

The rate of initial allowance, which is available to both lessors and owner-occupiers, is 25 per cent in the case of construction expenditure and 50 per cent in the case of refurbishment expenditure. The rate of free depreciation, which is available only to owner-occupiers, is 50 per cent in the case of construction expenditure and 100 per cent in the case of refurbishment expenditure. Refurbishment expenditure incurred in the qualifying period is deemed to include (in addition to the actual refurbishment expenditure) the lesser of —

• the purchase price paid for the building or structure (exclusive of site cost), and
• its market value (exclusive of site vale) on 1 January, 1991,

but only if the refurbishment expenditure so incurred is at least equal to that purchase price or market value, as may be appropriate.

Details

Qualifying industrial buildings or structures

(1) The section applies to certain industrial buildings or structures in the Temple Bar Area which are either constructed in the qualifying period or are in existence on 1 January, 1991 and are refurbished in that period. The industrial buildings or structures covered are those in use for the purposes of a trade carried on in a mill, factory or other similar premises or in a laboratory the sole or main function of which is the analysis of minerals, or for the purposes of a trade of hotel-keeping. Given the nature of the Temple Bar Area, the section applies mainly to hotels.

Allowances available

(2) The normal industrial building annual writing-down allowances are already available under section 272 in respect of capital expenditure incurred on the construction or refurbishment of qualifying industrial buildings or structures, namely, 4 per cent allowances for factories, mills, laboratories, etc and 15 per cent (10 per cent in year 7) allowances for hotels.

Accelerated capital allowances are now made available as follows in respect of such construction or refurbishment expenditure but only in so far as that expenditure is incurred in the qualifying period (see subsection (6)).

An industrial building (initial) allowance is made available under section 271 in respect of qualifying expenditure. The allowance is available to both owner-occupiers and lessors of qualifying industrial buildings or structures. The rate of allowance is 25 per cent in the case of qualifying construction expenditure and 50 per cent in the case of qualifying refurbishment expenditure.

In addition (by the deemed deletion of subsection (5) of that section), an industrial building (initial) allowance and an annual writing-down allowance may be made for the same chargeable period in respect of qualifying expenditure, and the fact an industrial building (initial) allowance is made for a chargeable period in respect of qualifying expenditure does not preclude accelerated writing-down allowances (free depreciation) being claimed in respect of that expenditure for subsequent chargeable periods.

(3) Accelerated writing-down allowances (free depreciation) are made available under section 273 in respect of qualifying expenditure. Free depreciation is available only to owner-occupiers of qualifying industrial buildings or structures – it is not available to lessors. The rate of free depreciation available is 50 per cent in the case of qualifying construction expenditure and 100 per cent in the case of qualifying refurbishment expenditure.

Refurbishment expenditure

(4) Refurbishment expenditure incurred in the qualifying period is deemed to include (in addition to the actual refurbishment expenditure) the lesser of—

• the purchase price paid for the building or structure (exclusive of site cost), and
• its market value (exclusive of site value) on 1 January, 1991,

but this effective enhancement of the relief is available only if the refurbishment expenditure actually incurred in the qualifying period is at least equal to that purchase price or market value, as may be appropriate.

Balancing charge

(5) Where a sale or other event which normally might give rise to a balancing charge under section 274 occurs in relation to a qualifying industrial building or structure which is a factory, mill or laboratory type premises, a balancing charge will not be made if that event occurs more than 13 years after the building or structure was first used or, in the case where refurbishment expenditure on the building or structure qualified for capital allowances, more than 13 years after that expenditure was incurred.

[This provision does not impact on hotels where the retention period required to avoid a balancing charge is 7 years or 10 years depending on when the capital expenditure on the construction or refurbishment of the hotel was incurred (section 274(1)(b)(iii) refers).]

Qualifying expenditure

(6) The capital expenditure which is to qualify for accelerated capital allowances must be expenditure incurred on construction or refurbishment work actually carried out during the qualifying period. Where work commences, but is not completed, in the qualifying period, only the part of the expenditure referable to the work carried out in that period qualifies for the accelerated capital allowances provided by this section. Of course, title to the normal writing-down allowances still exist in relation to the part of the expenditure referable to work carried out outside the qualifying period.

This provision negates, for the purposes only of determining the amount of expenditure which is to qualify for accelerated capital allowances under this section, other provisions of the Tax Acts which, by treating expenditure as incurred later than the carrying out of the work, might otherwise deprive a person of those allowances. The provisions so negated are—

• section 279 which deals with a case where an industrial building or structure is bought before it is used or within one year of it commencing to be used and provides for certain expenditure to be treated as having been incurred when the purchase price becomes payable,
• section 316(2) which for the purposes of capital allowances for industrial buildings or structures treats expenditure as incurred when the sum in question becomes payable, and
• section 316(3) which for the purposes of industrial building (initial) allowances treats expenditure incurred before a trade commences as incurred when the trade commences.

Bar on double relief

(7) It is not possible to obtain “double relief” under this section and also under the Temple Bar Area legislation that operated under section 42 of the Finance Act, 1986 as applied by section 55 of the Finance Act, 1991. Any allowance given or charge made under that earlier legislation in respect of capital expenditure incurred in the qualifying period on the construction or refurbishment of qualifying industrial buildings or structures is treated as having been given or made under this section.

Relevant Date: Finance Act 2019