372C Accelerated capital allowances in relation to construction or refurbishment of certain industrial buildings or structures

Summary

Accelerated capital allowances are provided in respect of capital expenditure incurred on the construction or refurbishment of certain industrial buildings or structures such as factories, mills and similar type premises. The building or structure must be situated in a qualifying area and must be used for the purposes of carrying on a trade. Part of such a building or structure situated in a qualifying area will also qualify. The accelerated capital allowances are available only in respect of capital expenditure incurred on construction or refurbishment work which is carried out in the qualifying period. An initial allowance of 50 per cent may be claimed by both owner-occupiers and lessors with annual allowances of 4 per cent available for the balance of the qualifying expenditure. Alternatively, an accelerated allowance known as free depreciation of up to 50 per cent is available to owner-occupiers only. Refurbishment expenditure on an industrial building only qualifies for allowances if it is not less than 10 per cent of the value of the building before refurbishment.

The accelerated capital allowances provided by this section are not available in certain circumstances – see section 372K for full details.

By virtue of the provisions of sections 270(4) to (7) and 316, the amount of capital expenditure incurred in the year 2007 and in the period 1 January 2008 to 31 July 2008 must be reduced to 75 per cent and 50 per cent respectively of the amount attributable to the period involved. An overall cap also applies on the amount of expenditure incurred in the period 1 January 2007 to 31 July 2008 which may qualify for relief.

Details

Qualifying industrial buildings or structures

(1) The section applies to industrial buildings or structures such as mills, factories and other similar premises situated in a qualifying area used for the purposes of a trade and which are built or refurbished in the qualifying period. The section also applies to parts of such buildings or structures which are situated in a qualifying area.

Allowances available and rates

The normal industrial building writing-down allowances of 4 per cent per annum are already available under section 272 in respect of capital expenditure incurred on the construction or refurbishment of qualifying industrial buildings or structures. Accelerated capital allowances are now made available as follows in respect of such construction or refurbishment expenditure.

(2) An industrial building (initial) allowance of 50 per cent for capital expenditure incurred in the qualifying period on the construction or refurbishment of industrial buildings is made available under section 271 to owner-occupiers and lessors.

(3) Alternatively, free depreciation (an acceleration of the annual writing-down allowances) up to 50 per cent of construction or refurbishment expenditure incurred in the qualifying period may be claimed under section 273 by owner-occupiers. Lessors cannot claim free depreciation.

The balance of the qualifying expenditure may be written off at 4 per cent per annum where initial allowance or free depreciation is claimed.

Restrictions on expenditure incurred in 2007 and 2008

The relieving provisions of this section (subsections (2) and (3)) are subject to sections 270(4) to (7) and section 316(2B). Under those sections, any capital expenditure incurred in the year 2007 and in the period 1 January 2008 to 31 July 2008 is subject to the respective reductions to 75 per cent and 50 per cent of the amount attributable to the period involved (see notes on section 270).

Additionally, by virtue of the provisions of section 270(7), the amount of expenditure incurred in the period 1 January 2007 to 31 July 2008 which may be taken into account in calculating capital allowances is capped at the amount of expenditure, projected to be incurred post 31 December 2006, which was certified by the local authority. This cap will apply prior to the application of the respective reductions to 75 per cent and 50 per cent of the capital expenditure for the period involved (see notes on section 270(7)).

Capital expenditure is regarded as incurred in a period only if it is attributable to work carried out in that period (see notes on section 316(2B)).

Refurbishment expenditure

(4) The allowances provided for in the section are only available in the case of refurbishment expenditure where the capital expenditure incurred on refurbishment is not less than 10 per cent of the market value of the building before refurbishment.

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, 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.

Qualifying expenditure

(6) The capital expenditure which is to qualify for the industrial building (initial) allowance and free depreciation 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 those allowances. Of course, title to the normal writing-down allowances under section 272 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 the industrial building (initial) allowance and free depreciation, 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.

Relevant Date: Finance Act 2019