Childcare Services - BIK/Capital Allowances

Capital Allowances for buildings used for certain childcare purposes

Introduction

Section 49 Finance Act 1999 introduced capital allowances for expenditure incurred on certain premise sused for the purposes of providing certain childcare services.

Qualifying Expenditure

Capital expenditure incurred on or after 2 December 1998 on the construction, extension or refurbishment of a building or part of a building used as a childcare facility qualifies. Capital expenditure incurred on the conversion of an existing building or part of an existing building for use as a childcare facility also qualifies.

Childcare Services

The childcare services which must be provided are:

• A pre-school service (as defined in the Child Care Act 1991)
  or
• A pre-school service and a day-care or other service to cater for children other than pre-school children.

The Child Care Act 1991 applies to services for pre-school children i.e. children under the age of 6 who are not attending National School. It applies to any pre-school, play group, day nursery, crèche, day-care or other similar service for pre-school children. Childcare facilities must cater for pre-school children in order for a building to qualify for allowances. However, buildings with facilities which cater for other children will qualify for allowances as long as they also cater for pre-school children.

The operator of the childcare facility must have formally notified the local Health Board that she or he has set up or is operating the service and must have paid the required fee.

Expenditure on any part of a building in use as (or as part of) a dwelling house does not qualify for the allowance.

For example, if a garage is converted into a childcare facility or a house is extended to provide such a facility expenditure on a hallway which is used as the entrance to the dwelling house and to the childcare facility will not qualify for the allowance.

Write-off period

The allowances may be written off over 7 years at the rate of 15 per cent per annum for the first 6 years and 10 per cent in year 7.

Balancing Charge

Although the write-off period for allowances is 7 years, there will be a clawback of the allowances, in the form of a balancing charge, if the building is sold or ceases to be used as a childcare facility within a period of 10 years.

Limit on offset of allowances for passive investors

Where the capital allowances exceed the income from the operation of the childcare facility, the excess may be set off against the other income of the operator.

Where the qualifying expenditure is incurred by individuals who are passive investors (i.e. an investor who lets the property to an operator or an individual who is not an active partner in a partnership trade of operating the childcare facility) then the maximum excess allowances (over rental income or the trading income involved) which can be set against the individual’s other income is restricted in accordance with Section 409A Taxes Consolidation Act 1997. This provides that the maximum amount which may be set against other income of passive investors in respect of expenditure on certain buildings is restricted to ₤25,000 per annum.