Revenue Note for Guidance

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Revenue Note for Guidance

323 Capital allowances in relation to construction of certain commercial premises

Summary

This section provides for the granting of capital allowances for capital expenditure incurred in respect of work carried out on the construction of commercial buildings and structures (for example, offices, shops, etc) in the specified period. The capital allowances are available in respect of the full expenditure so incurred. The allowances available are —

  • annual writing-down allowances of 4 per cent (available to both owner-occupiers and lessors),
  • an industrial building (initial) allowance of 50 per cent (available to both owner-occupiers and lessors), and
  • free depreciation (accelerated writing-down allowances) of up to 100 per cent (available only to owner-occupiers).

Details

Qualifying premises

(1) The definition of “qualifying premises” outlines the types of buildings or structures in relation to which expenditure on construction or refurbishment may qualify for relief if the work is carried out in the specified period. Firstly, the site of the building or structure must be wholly within the Custom House Docks Area. Secondly, the building or structure must not be an industrial building or structure, nor must it be in use as or as part of a dwelling house. Thirdly, the building or structure must be either in use for the purposes of a trade or profession or let on a commercial basis whether or not it is so used for the purposes of a trade or profession.

Application of law relating to industrial buildings or structures

(2)(a) Subject to the modifications set out in subsections (3) to (5), the provisions of the Tax Acts relating to capital allowances for industrial buildings or structures apply to qualifying premises, despite anything to the contrary in those provisions (for example, the exclusion of allowances for retail shops in section 268). Those provisions, which specifically relate to the use of premises for a trade, are so applied as if a qualifying premises were at all times it is a qualifying premises an industrial building or structure within section 268(1)(a) (for example, a mill, factory or other similar premises) and as if any activity carried on in the qualifying premises which is not a trade were a trade. The reference to the qualifying premises being so treated “at all times at which it is a qualifying premises” ensures that a change in the nature of the use of the premises from, say, use as a shop to use as an office constitutes continuance of use as a qualifying premises.

Allowances available

(2)(b) Allowances are available only in respect of capital expenditure incurred during the specified period (see subsection (5)).

The effect of subsection (2)(a) is to make annual writing-down allowances of 4 per cent available under section 272 in respect of qualifying expenditure. The allowances are available to both owner-occupiers and lessors of qualifying premises.

An industrial building (initial) allowance of 50 per cent of qualifying expenditure is made available under section 271. The allowance is available to both owner-occupiers and lessors of qualifying premises.

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 that an industrial building (initial) allowance is made for a chargeable period in respect of qualifying expenditure does not preclude free depreciation (an acceleration of the annual writing-down allowances) being claimed in respect of that expenditure for subsequent chargeable periods.

(3)(a)(ii) Free depreciation of up to 100 per cent of qualifying expenditure is made available under section 273. Free depreciation is available only to owner-occupiers of qualifying premises.

Balancing charge

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

Qualifying expenditure

(5) The capital expenditure which is to be relieved must be expenditure incurred on work carried out during the specified period. The inspector may determine the amount of the capital expenditure referable to the work carried out during that period. Where work commences, but is not completed, in the specified period, only the part of the expenditure referable to the work carried out in that period qualifies for relief.

This provision negates, for the purposes only of determining the amount of expenditure to be relieved 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 relief under this section. 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 2018