In this short article, G&T’s Construction & Property Tax Advisory team look at potential options for incentivising business to help drive positive growth and good sustainability credentials.
What is top of many business agendas as we enter 2021 with the pandemic ongoing?
- Where and how should we invest for future growth?
- How can we be a part of the drive for a better planet?
Not easy questions to answer, but existing legislative frameworks could help to incentivise the private sector to play its part. This is no less true in the context of construction and property where current tax rules and regulations could be adapted to focus the minds of those looking to push the sector forward in a positive way.
This is not a new concept. Tax policy has often been used to encourage specific types of investment but, in the current climate, more could be done to incentivise sustainable development. With capital allowances providing UK tax payers with significant savings on their capital investment expenditure some simple but positive changes could be:
- Reintroduce enhanced capital allowances which had provided 100% tax relief on energy and water efficient assets before April 2020. These could also be expanded to look at wider sustainability innovations being designed into commercial buildings. A top BREEAM or LEED certification covers much more than just the plant and equipment, so why not link 100% tax relief to more holistic solutions. Even better, increase it to 150% in the same way as Land Remediation Relief and perhaps allow for a cash credit when finance is needed most, at the time of construction.
- Simplify the Enterprise Zone regime which currently is complicated to negotiate. The same rules do not apply to every area which could benefit and some of these areas are so narrowly defined it is difficult to say how much investment they have really attracted. A more cohesive package could be put together, opening up wider areas or specific sectors where businesses are rewarded with significant tax breaks on their investments.
- Reintroduce 100% tax relief via the Business Premises Renovation Allowance and Flat Conversion Allowance. The former encouraged the re-birth of unused commercial premises in certain areas and the latter the conversion of existing space above shops/commercial premises into new residential. Both of these were quite complex but with a bit of adaptation could provide the basis for more targeted incentives. With our high streets under so much pressure at the moment, any innovative property ideas that could reinvigorate these areas would have a positive impact on local economies and communities.
- Simplify and improve the benefit of Structures and Buildings Allowance. With any savings currently only flowing back to the claimant at 3% per annum, the clawback from investors when they sell a building and the administrative burden of the legislation this is not currently providing a great incentive to invest. To make the UK the go-to place for property investment, a relief that people can see and usefully factor into their investment could be a welcome step.
It would be positive to see the legislation adapted such that Government can further assist businesses and drive their own agenda at the same time. With Brexit now done, there is also an opportunity for the UK to be progressive by having the freedom to start using the VAT regime in a more targeted way, to complement their initiatives in these other areas.