Tax Breaks for Renovations

Investors and developers looking to renovate their property can benefit from unlocking the secrets of tax breaks.  Ryden reports an increase in advice sought in relation to Business Premises Renovation Allowance, a 100% capital allowance for the renovation and conversion of business premises which meet specific criteria.  The firm attributes the trend to current market conditions.

BPRA is intended to bring buildings in certain areas back into use.  The allowance is perceived as a more focused boost than the SDLT Disadvantaged Areas Relief which was previously available. 

Qualifying Buildings

In order to qualify for the allowance the building (or part of the building) must be in a disadvantaged area and have been vacant for at least a year before renovation works begin.  The property must have last been used as an office or for trade/profession purposes.  It must never have been a dwelling and has to remain as business premises after the renovations have taken place.

The breaks will be given following the renovation which returns the building to use.  They will be available in the same tax year as the works complete.

BPRA can be claimed on capital costs arising from the renovation of the building but doesn’t extend to land acquisitions, extensions, developing adjoining land or plant and machinery which doesn’t become a fixture.

The 100% relief can equate to as much as a 30-40% benefit to some companies or individuals.

Once a claim has been made, the property must be retained for seven years by the investor/developer making use of BPRA, otherwise a claw-back will apply.  The same applies if the building is demolished or destroyed or ceases to be used as a qualifying building.

BPRA can help off-set the cost of bringing back to the market vacant buildings in good locations that need to be refurbished to secure tenants, but that have been hampered by rising construction costs or flat rental growth.

While a property may meet all of the qualifying criteria and be capable of a qualifying use, the availability of BPRA may not change the viability of refurbishing the property if there are no prospects for attracting tenants.  BPRA may also apply to specific domestic redevelopments but special conditions apply.

Ryden is assessing a number of schemes and, with particular tax focused clients, has identified a number of properties to be refurbished and become available for letting.  There are ways to preserve the allowances claim even if the property is disposed of.  This is to ensure that a funding structure can be made available to syndicated purchasers or for mainstream developers.

Relatively straightforward BPRA does present some pitfalls and may not always be appropriate.  In some cases, the time may make projects unviable as BPRA stipulates that properties must be vacant for 12 months.  Holding costs also come in to the equation and property owners may have to commit to refurbishment sooner rather than later to attract a tenant. 

Ryden helps developers and investors alike in considering the available options and how to approach capital allowances legislation.  This includes those with qualifying buildings seeking help with weighing up their options; we also advise occupiers with upgrading and improving existing holdings for future re-occupation or letting that are no longer suitable to assessing contract pricing and implementing works.

For further information or assistance with BPRAs, contact Steven Gay at Ryden on 0141 204 3838 or steven.gay@ryden.co.uk