332 Capital allowances in relation to construction or refurbishment of certain commercial premises

Summary

This section provides for a scheme of capital allowances in respect of capital expenditure incurred on the construction or refurbishment in the qualifying period of commercial premises in the Temple Bar Area (that is, buildings which are not industrial buildings or structures for tax purposes, for example, shops, offices, pubs, multi-storey car parks, etc).

In the case of refurbishment expenditure and the construction of multi-storey car parks, 100 per cent of the expenditure incurred is available for write-off. Refurbishment expenditure incurred in the qualifying period is deemed to include (in addition to the actual refurbishment expenditure so incurred) the lesser of the purchase price paid for the building (exclusive of site cost) and its market value (exclusive of site vale) on 1 January, 1991, but only if the refurbishment expenditure so incurred is at least equal to the purchase price or market value, as may be appropriate. In the case of other construction expenditure, a maximum of 50 per cent of the expenditure incurred is available for write-off.

For refurbishment expenditure and construction expenditure on certain multi-storey car parks, which qualifies for a full 100 per cent write off, the scheme of allowances is —

• 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
• accelerated writing-down allowances (free depreciation) of 100 per cent (available only to owner-occupiers).

For other construction expenditure, which qualifies only for a 50 per cent write off, the scheme of allowances is —

• annual writing-down allowances of 2 per cent (available to both owner-occupiers and lessors),
• an industrial building (initial) allowance of 25 per cent (available to both owner-occupiers and lessors), and
• accelerated writing-down allowances (free depreciation) of 50 per cent (available only to owner-occupiers).

Details

Definitions

(1) “multi-storey car park” is a car park consisting of 3 or more storeys which must be wholly or mainly in use for the purpose of providing car parking to the public generally without preference for any particular class of person.

“qualifying premises” defines the buildings or structures expenditure on the construction or refurbishment of which may qualify for relief if the work is carried out in the qualifying period. Firstly, the building or structure must be constructed in the Temple Bar Area in the qualifying period or, in the case of buildings or structures in existence in that Area on 1 January, 1991, refurbished in that period. 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 in use for the purposes of a trade or profession or, whether or not it is so used, let on a commercial basis.

Application of law relating to industrial buildings or structures

(2)(a) Subject to the modifications set out in subsections (3) to (8), 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 (8)).

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. By virtue of subsection (7), however, the writing-down allowances are halved to 2 per cent in the case of qualifying construction expenditure other than such expenditure on multi-storey car parks. The writing-down allowances are available to both owner-occupiers and lessors of qualifying premises.

(3) An industrial building (initial) allowance of 50 per cent of qualifying expenditure is made available under section 271. By virtue of subsection (7), however, the initial allowance is halved to 25 per cent in the case of qualifying construction expenditure other than such expenditure on multi-storey car parks. The initial allowance is available to both owner-occupiers and lessors of qualifying premises.

In addition (by the deemed deletion of subsection (5) of section 271), 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 for subsequent chargeable periods.

(4) Free depreciation (an acceleration of the annual writing-down allowances) of up to 100 per cent of qualifying expenditure is made available under section 273. By virtue of subsection (7), however, the free depreciation entitlement is halved to 50 per cent in the case of qualifying construction expenditure other than such expenditure on multi-storey car parks. Free depreciation is available only to owner-occupiers of qualifying premises.

Refurbishment expenditure

(5) Refurbishment expenditure incurred in the qualifying period is deemed to include (in addition to the actual refurbishment expenditure) the lesser of—

• the purchase price paid for the building or structure (exclusive of site cost), and
• its market value (exclusive of site value) on 1 January, 1991,

but this effective enhancement of the relief is available only if the refurbishment expenditure actually incurred in the qualifying period is at least equal to that purchase price or market value, as may be appropriate.

Balancing charge

(6) 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.

Allowances halved for construction expenditure except for multi-storey car parks

(7)(a) In the case of qualifying construction expenditure, other than in the case of multi-storey car parks, only one-half of the writing-down allowances, industrial building (initial) allowance and free depreciation which would otherwise apply are available. In effect, therefore, annual writing-down allowances of 2 per cent, an industrial building (initial) allowance of 25 per cent and free depreciation of 50 per cent are available in respect of such expenditure, and there is an overall cap of 50 per cent on the amount of such expenditure which can be written off. Any balancing allowances or charges arising are similarly restricted to one-half of the allowance or charge which would otherwise arise.

(7)(b) The allowances and charges are computed in the first place as if the one-half restriction did not apply and the resultant allowances or charges are then reduced by one-half.

(7)(c) The operation of section 274(8) is not affected by this mechanism. Thus, the amount of a balancing charge cannot exceed the amount of the capital allowances actually made to the taxpayer.

Qualifying expenditure

(8) The capital expenditure which is to be relieved must be expenditure incurred on work 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 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.

Bar on double relief

(9) It is not possible to obtain “double relief” under this section and also under the Temple Bar Area legislation that operated under section 42 of the Finance Act, 1986 as applied by section 55 of the Finance Act, 1991. Any allowance given or charge made under that earlier legislation in respect of capital expenditure incurred in the qualifying period on the construction or refurbishment of qualifying premises is treated as having been given or made under this section.

Relevant Date: Finance Act 2021