Revenue Note for Guidance

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Revenue Note for Guidance

272 Writing-down allowances

Summary

An industrial building writing-down allowance (also known as an industrial building “annual allowance”) is given to a person who at the end of a chargeable period holds the relevant interest in relation to the capital expenditure incurred on the construction (including, by virtue of section 270, refurbishment) of an industrial building or structure, provided that at the end of the chargeable period or its basis period the building or structure is actually in use as an industrial building or structure. The annual rates of writing-down allowances are —

  • in the case of registered hotels and registered holiday camps, 4 per cent of the qualifying capital expenditure incurred on the building or structure. (Annual rates of 15 per cent and 10 per cent previously applied – depending on when the capital expenditure was incurred (see subsection (3)(c) for details);
  • in the case of registered guest houses and registered holiday hostels, 4 per cent of the capital expenditure incurred on the building or structure. The same rate also applies in the case of registered caravan and camping sites, in relation to capital expenditure incurred on buildings or structures on or after 1 January 2008;
  • in the case of registered nursing homes (including associated qualifying residential units for the aged or infirm – but subject to restrictions on the level of allowable expenditure), convalescent homes, qualifying hospitals, qualifying sports injuries clinics (this scheme ceases on 31 July 2008) and qualifying mental health centres (applies from 23 January 2007), 15 per cent of the qualifying capital expenditure incurred on the building or structure over 6 years and 10 per cent in year 7. This rate will also apply to capital expenditure incurred on the construction or refurbishment of qualifying specialist palliative care units once the scheme is commenced (see section 26 Finance Act 2008);
  • in the case of buildings or structures used for a trade of market gardening and buildings or structures used for the intensive production of cattle, etc, 10 per cent of the capital expenditure incurred on the building or structure. This rate also applied to qualifying capital expenditure incurred on registered holiday cottages prior to the termination of the scheme of relief for such buildings;
  • in the case of an aviation services facility:
    • where the capital expenditure incurred on the building or structure is specified capital expenditure, 15 per cent of that expenditure over 6 years and 10 per cent in year 7.
    • 4 per cent of the capital expenditure incurred on the building or structure where the expenditure is not specified capital expenditure.
  • in any other case, 4 per cent of the capital expenditure incurred on the building or structure (or, where applicable, where the expenditure was incurred before 16 January 1975, 2 per cent of that expenditure).

The allowances are given on a straight-line basis. This means that the qualifying capital expenditure incurred is written off by means of the annual writing-down allowance over a period of —

  • in the case of registered hotels and registered holiday camps, 25 years. (Periods of 7 years and 10 years previously applied – depending on when the qualifying capital expenditure was incurred (see subsection (4)(c) for details);
  • in the case of registered guest houses, registered holiday hostels and registered caravan and camping site, 25 years;
  • in the case of registered nursing homes (including associated qualifying residential units for the aged or infirm), convalescent homes, qualifying hospitals, qualifying sports injuries clinics and qualifying mental health centres, 7 years. A similar writeoff period will apply in relation to qualifying specialist palliative care units once the scheme is commenced;
  • in the case of buildings or structures used for a trade of market gardening and buildings or structures used for the intensive production of cattle, etc, 10 years. This period also applied to registered holiday cottages which qualified prior to the termination of relief for such buildings,
  • in the case of an aviation services facility:
    • 7 years where the capital expenditure incurred is specified capital expenditure,
    • 25 years where the capital expenditure incurred is not specified capital expenditure.
  • in any other case, 25 years (or, where the expenditure was incurred before 16 January 1975, 50 years).

Where an industrial building or structure is sold, then any residue of capital expenditure (within the meaning of section 277) is to be written off over the remaining tax life. This tax life is, in the case of some buildings, greater than the periods mentioned above – see subsection (4) for details.

NB: By virtue of the provisions of sections 270(5) and (7), capital expenditure incurred in the year 2007 and the period 1 January 2008 to 31 July 2008 is to be restricted in the case of certain buildings when calculating capital allowances due – see the notes at the end on this section. In the case of qualifying residential units associated with registered nursing homes, reduced levels of qualifying capital expenditure apply up to 30 April 2010 when this scheme is due to terminate – see section 270(8).

Details

Conditions

(1) A building or structure qualifies for the writing-down allowances if the capital expenditure on its construction was incurred on or after 30 September 1956.

(2) To qualify for a writing-down allowance for a chargeable period —

  • a person must at the end of the chargeable period or its basis period be entitled to an interest in a qualifying building or structure,
  • at the end of the chargeable period or its basis period that building or structure must be an industrial building or structure (see section 268), and
  • the interest to which the person is entitled in the building or structure must be the relevant interest in relation to the capital expenditure incurred on its construction (including, by virtue of section 270, its refurbishment).

Rates of allowance – general

(3) The annual writing-down allowance to be made in relation to qualifying capital expenditure incurred on the construction (including, by virtue of section 270, refurbishment) of a building or structure is (subject to subsection (4)) an amount equal to —

  • (3)(a) in the case of a building or structure in use for the purposes of a trade carried on in a mill, factory, etc, or in a mineral laboratory, or for the purposes of a dock undertaking, 4 per cent of the capital expenditure incurred (or, where the expenditure was incurred before 16 January 1975, 2 per cent of that expenditure),
  • (3)(b) in the case of a building or structure in use for the purposes of a trade of market gardening or for the intensive production of cattle, etc, 10 per cent of the capital expenditure incurred,
  • (3)(c) in the case of a building or structure in use for the purposes of a trade of hotel-keeping, including a holiday camp (but not including a registered holiday cottage, a registered guest house, a registered holiday hostel or any other building or structure deemed to be in use for such purposes):
    • 4 per cent of the capital expenditure where that expenditure is incurred on or after 4 December 2002 [or after 31 December 2006 where subsection (8) applies or after 31 July 2008 where subsections (8) and (9) apply],
    • 15 per cent of the qualifying capital expenditure over 6 years and 10 percent in year 7 where the expenditure was incurred on or after 27 January 1994,
    • 10 per cent of the capital expenditure where that expenditure was incurred before 27 January 1994,
  • (3)(d) in the case of a registered holiday cottage which qualified prior to the termination of relief for such buildings, 10 per cent of the qualifying capital expenditure incurred,
  • (3)(da) in the case of a registered guest house or a registered holiday hostel to which section 268(2C) applies (i.e. which is deemed to be a building or structure in use for the purposes of a trade of hotel-keeping), 4 per cent of the capital expenditure incurred where that expenditure is incurred on or after 3 February 2005,
  • (3)(db) in the case of buildings and structures which are comprised in, and are in use as part of, premises which are registered in the register of caravan sites and camping sites, 4 per cent of the capital expenditure incurred where that expenditure is incurred on or after 1 January 2008,
  • (3)(e) in the case of an airport runway or an airport apron, 4 per cent of the capital expenditure incurred,
  • (3)(f) in the case of a building or structure in use for the purposes of a trade of operating or managing a registered private nursing home (including associated qualifying residential units for the aged or infirm) or for the purposes of a trade of operating or managing a convalescent home, 15 per cent of the qualifying over 6 years and 10 per cent in year 7,
  • (3)(g) in the case of a building or structure in use for the purposes of a trade of operating or managing an airport (other than as regards runways and aprons), 4 per cent of the capital expenditure incurred,
  • (3)(h) in the case of a building or structure in use for the purposes of a trade of operating or managing a qualifying hospital or a qualifying sports injuries clinic, 15 per cent of the qualifying expenditure over 6 years and 10 per cent in year 7.
  • (3)(i) in the case of a building or structure in use for the purposes of a trade of operating or managing a qualifying mental health centre, 15 per cent of the expenditure over 6 years and 10 per cent in year 7 where that expenditure is incurred on or after 23 January 2007 i.e. date of commencement of this scheme.
  • (3)(j) in the case of a building or structure in use for the purposes of a trade of operating or managing a qualifying specialist palliative care unit, 15 per cent of the expenditure over 6 years and 10 per cent in year 7 where that expenditure is incurred on or after the date of commencement of this scheme. This scheme is, subject to EU approval, to be commenced by order of the Minister for Finance.
  • in the case of an aviation services facility
    • (3)(k)(i) where the capital expenditure incurred is specified capital expenditure, 15 percent of that expenditure over 6 years and 10 per cent in year 7.
    • (3)(k)(ii) 4 per cent of the capital expenditure incurred where that expenditure is not specified capital expenditure.

Airports

The capital allowances (introduced in the Finance Act 1998) for airport buildings or structures (i.e. other than aprons and runways) also apply for such buildings or structures that were in existence at the time. The allowances apply from vesting day – 1 January 1999 – in the case of Aer Rianta (now known as the Dublin Airport Authority and including the Cork Airport Authority and the Shannon Airport Authority where relevant) and from the date of the passing of the 1998 Finance Act – 27 March 1998 – for other airport operators.

(3A) Expenditure is deemed to be a net amount i.e. the original construction cost less writing-down allowances at 4 per cent per annum which would have been granted had those buildings qualified for relief prior to those dates.

(3B) In the case of airport runways and aprons existing on 1 January 1999 and vested in Aer Rianta (now known as the Dublin Airport Authority and including the Cork Airport Authority and the Shannon Airport Authority where relevant) on that day, expenditure is deemed to have been incurred by Aer Rianta on that day on a net amount i.e. original cost less writing-down allowances that would have been granted up to the vesting day.

Sale of an industrial building or structure and “tax life”

(4) Where the relevant interest in an industrial building or structure is sold, a balancing allowance or charge may arise (see section 274) and such an allowance or charge is taken into account in determining the residue (if any) of the expenditure incurred on its construction (see section 277) immediately after the sale. Subject to the building or structure continuing to be an industrial building or structure, the purchaser of the relevant interest is entitled to writing-down allowances based on the residue of the expenditure. The rate of writing-down allowance in such cases is that which would write off the residue of the expenditure on a straight-line basis evenly over the remainder of the “tax life” of the particular building or structure at the date of sale.

For example, an industrial building has a tax life of 10 years and construction expenditure was to be written–off over 10 years. If the industrial building were sold at the end of year 6, the residue of the expenditure would be written off by way of annual writing-down allowances of 25 per cent of that residue over the remaining 4 years of the tax life of the building.

[In many cases the tax life of a building will be the same as the original period over which the expenditure on its construction was to be written off by means of writing-down allowances. However, in more recent times the tax life of a building may be greater that the writing-down period for the building e.g. the tax life of private hospitals and other health related facilities is now 15 years whereas the writing down period is only 7 years. In these cases if a building is sold at the end of year 6, the residue of expenditure will be written-off over the remaining 9 years of the 15-year period].

The extent of the tax life depends on the type of industrial building or structure involved and the time when the expenditure on its construction was incurred. The tax life generally runs from the time when the building was first used. The tax life is a period of —

  • (4)(a) in the case of a building or structure in use for the purposes of a trade carried on in a mill, factory, etc, or in a mineral laboratory, or for the purposes of a dock undertaking, 25 years from first use (or, where the expenditure was incurred before 16 January 1975, 50 years from first use),
  • (4)(b) in the case of a building or structure in use for the purposes of a trade of market gardening or for the intensive production of cattle, etc, 10 years from first use,
  • (4)(c) in the case of a building or structure in use for the purposes of a trade of hotel-keeping, including a holiday camp (but not including a registered holiday cottage, a registered guest house, a registered holiday hostel or any other building or structure which is deemed to be in use for such purposes):
    • 25 years from first use, where the capital expenditure is incurred on or after 4 December 2002 [or after 31 December 2006 where subsection (8) applies or after 31 July 2008 where subsections (8) and (9) apply],
    • 7 years from first use, where the capital expenditure was incurred on or after 27 January 1994,
    • 10 years from first use, where the capital expenditure was incurred before 27 January 1994,
  • (4)(d) in the case of a registered holiday cottage which qualified prior to the termination of relief for such buildings, 10 years from first use,
  • (4)(da) in the case of a registered guest house or a registered holiday hostel to which section 268(2C) applies (i.e. which is deemed to be a building or structure in use for the purposes of a trade of hotel-keeping), 25 years from first use where the capital expenditure is incurred on or after 3 February 2005,
  • (4)(db) in the case of buildings and structures which are comprised in, and are in use as part of, premises which are registered in the register of caravan sites and camping sites, 25 years from first use where the capital expenditure is incurred on or after 1 January 2008,
  • (4)(e)(i) in the case of an airport runway or an airport apron, 25 years from first use,
  • (4)(e)(ii) in the case of such runways or aprons existing on vesting day (1 January 1999) and vested in Aer Rianta (now known as the Dublin Airport Authority and including the Cork Airport Authority and the Shannon Airport Authority where relevant) on that day, 25 years from that day,
  • (4)(f) subject to paragraph (fa), in the case of a registered private nursing home (including qualifying residential units – see section 268(3A)) or a convalescent home, 7 years from first use, or 15 years from first use (or first use after refurbishment) where such first use occurs on or after 1 February 2007,
  • (4)(fa) in the case of qualifying residential units – see section 268(3A)) – where capital expenditure on construction or refurbishment is incurred under contracts or agreements entered into on or after 1 May 2007, 20 years from first use or first use after refurbishment,
  • in the case of airport buildings or structures (other than runways and aprons) —
    • (4)(g)(i) where new, 25 years from first use, or
    • (4)(g)(ii) where existing on:
      • in the case of Aer Rianta (now known as the Dublin Airport Authority and including the Cork Airport Authority and the Shannon Airport Authority where relevant), vesting day (1 January 1999), 25 years from that day, and
      • in the case of other airport operators, 27 March 1998, 25 years from that date,
  • (4)(ga) in the case of a qualifying hospital, 7 years from first use, or 15 years from first use (or first use after refurbishment) where this occurs on or after 1 February 2007,
  • (4)(h) in the case of a qualifying sports injuries clinic, 7 years from first use, and
  • (4)(i) in the case of a qualifying mental health centre, 15 years from first use (or first use after refurbishment). This scheme commenced by order of the Minister for Finance with effect from 23 January 2007.
  • (4)(i) in the case of a building or structure in use for the purposes of a trade of operating or managing a qualifying specialist palliative care unit, 15 years from first use (or first use after refurbishment) where the capital expenditure is incurred on or after the date of commencement of this scheme.
  • in the case of an aviation services facility:
    • (4)(k)(i) 7 years from first use (or first use after refurbishment) where the capital expenditure is specified capital expenditure,
    • (4)(k)(j) 25 years from first use (or first use after refurbishment) where the capital expenditure is not specified capital expenditure.

(5) Where the sale price of the building or structure is less than the residue of the expenditure immediately after the sale, the sale price is treated as the residue of the expenditure for the purposes of determining the writing-down allowances to be made under subsection (4).

Limit on writing-down allowances

(6) The amount of a writing-down allowance to be made for a chargeable period (whether under subsection (3) or (4)) cannot exceed what, apart from that allowance, would be the residue of the capital expenditure at the end of the chargeable period or its basis period. In effect, this ensures that writing-down allowances are given only up to the amount of the capital expenditure incurred on the construction of the building or structure. No writing-down allowances will be given once the whole of that expenditure has been written off (whether through writing-down allowances only, or through such allowances and an industrial building allowance under section 271).

Hotels converted to nursing homes

(7) A hotel which is converted into a registered private nursing home will not lose entitlement to any unclaimed capital allowances as a result of it ceasing to be a hotel.

Transitional arrangements: Hotels and holiday camps

(8) and (9) The reduction in the annual writing-down allowance to be made in relation to capital expenditure incurred on the construction (including, by virtue of section 270, refurbishment) of hotel buildings and holiday camps (see subsection (3)(c)) and the resulting increase in the tax life of such buildings to 25 years (see subsection (4)(c)) will not apply as respects capital expenditure incurred by 31 December 2006 or by 31 July 2008 where certain conditions are met.

(8) These changes will not apply in relation to capital expenditure incurred by 31 December 2006 if:

  • (8)(a) a planning application (other than for outline permission), in so far as planning permission is required, in respect of the building or structure is made in accordance with the Planning and Development Regulations 2001 to 2002, the planning authority acknowledge under article 26(2) of the Planning and Development Regulations 2001 that the application was received on or before 31 December 2004, and the application is not an invalid application under article 26(5) of those regulations,
  • (8)(b) a planning application (other than for outline permission), in so far as planning permission was required, in respect of the building or structure was made in accordance with the Local Government (Planning and Development) Regulations 1994, the planning authority acknowledge under article 29(2)(a) of those regulations that the application was received on or before 10 March 2002, and the application was not an invalid application under article 29(2)(b)(i) of those regulations,
  • (8)(ba) the construction or refurbishment work represented by the expenditure is exempted development for the purposes of the Planning & Development Act 2000, by virtue of section 4 of that Act or by virtue of Part 2 of the Planning and Development Regulations 2001 (S.I. No. 600 of 2001) and the following conditions are satisfied not later than 31 December 2004:
    • a detailed plan in relation to the development work is prepared,
    • a binding contract in writing exists under which the expenditure on the development is incurred, and
    • work to the value of 5 per cent of the development costs is carried out,

    or
  • (8)(c) the construction or refurbishment of the building or structure is development in respect of which a valid application is made for a certificate under section 25(7)(a)(ii) of the Dublin Docklands Development Authority Act 1997 and the application is acknowledged by the Dublin Docklands Development Authority as having been received on or before 31 December 2004.

(9) These changes will not apply in relation to capital expenditure incurred by 31 July 2008 if:

  • (9)(a) the relevant planning application etc. condition in subsection (8) was met,
  • (9)(b) work to the value of at least 15 per cent of the actual construction or refurbishment costs is carried out by 31 December 2006,
  • (9)(c) a binding contract in writing in relation to the construction or refurbishment is in place by 31 July 2006, and
  • (9)(d) any other conditions, relating to compliance with State aid issues, which the Minister for Finance may specify in regulations, have been satisfied.

By virtue of paragraphs (a) and (b) of section 270(7) local authority certification is required in respect of the condition that work to the value of at least 15 per cent of the construction or refurbishment costs is carried out by 31 December 2006. Such certification must include details of actual expenditure incurred to 31 December 2006 and of projected expenditure post 31 December 2006.

Restrictions on amount of qualifying expenditure incurred in 2007 and in first 7 months of 2008 – certain buildings and structures

s. 270(5) By virtue of section 270(5), the amount of any capital expenditure incurred on the construction or refurbishment of registered hotels, holiday camps and holiday cottages for the year 2007 and the period 1 January 2008 to 31 July 2008 is restricted to 75 per cent and 50 per cent respectively of the amount attributable to the period involved. Similar restrictions apply in the case of qualifying sports injuries clinics and qualifying residential units associated with registered nursing homes. However, in the case of such units the 75 per cent restriction for 2007 applies only from 25 March 2007.

s. 270(7) Additionally, in the case of registered hotels, holiday camps and holiday cottages 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, under section 270(7), at the amount of expenditure, projected to be incurred post 31 December 2006, which was certified by the local authority – see subsection (9) above. This cap will apply prior to the application of the respective reductions to 75 per cent and 50 per cent of expenditure. [See notes on section 270 for more details].

s. 270(8) Following further changes made to the scheme of capital allowances for qualifying residential units in Finance Act 2007, capital expenditure incurred under contracts entered into on or after 1 May 2007 will qualify only in relation to 50 per cent of the capital expenditure incurred in the period 1 May 2007 to 30 April 2010 in the case of individuals and in relation to 75 per cent of the expenditure incurred in that period in the case of companies.

s. 316(2B) For the purposes of these restrictions, expenditure is treated as incurred in a period only to the extent that it is attributable to work actually carried out in that period.

Relevant Date: Finance Act 2018