Business Premises Renovation Allowance (BPRA) is designed to encourage conversion and renovation of empty business properties in specified 'assisted areas'. BPRA provides a 100% tax relief to property owners on money spent on conversion or renovation works on a building. The relief is available to individuals and partnerships as well as companies.
BPRA was originally intended to come to an end in April 2012 but has been extended to 31 March 2017 for corporation tax purposes and 5 April 2017 for income tax purposes. When the relief was extended some further changes had to be made to ensure that it continued to comply with European Commission State Aid rules.
Empty buildings that qualify for relief
The building, or part of a building, must be in an area that qualifies for relief (an assisted area) when the expenditure is incurred. The current list of assisted areas was due to expire on 31 December 2013. However, the European Commission announced that the current regional aid rules would be extended until 30 June 2014. It has also issued new guidelines on regional state aid from 2014 to 2020. The Department for Business, Innovation and Skills (BIS) launched a consultation in July 2013 on what, bearing in mind the European Commission's new guidelines, the assisted areas should be from 1 July 2014.
The building must have been empty for at least a year before renovation works begin. It must have been last used as an office or for the purposes of a trade, profession or vocation to qualify for relief, and must not have been used as a dwelling.
Tax relief will not be given if the building does not remain a business premises after the renovation works have been completed.
Premises used for fisheries and aquaculture, shipbuilding, coal or steel industry, synthetic fibres or the production of certain agriculture and dairy products will not qualify for BPRA.
The relief will not be available to certain businesses that are in financial difficulties.
Claiming Business Premises Relief Allowance
BPRA provides a 100% tax deduction on the capital costs a company incurs in converting, renovating or repairing a qualifying building.
BPRA will not apply to any capital expenditure in buying the land, building extensions, developing adjoining land or costs incurred on plant and machinery that does not become a fixture for land law purposes.
You can do a postcode search to get an indication of whether the property is likely to be in an assisted area, but this should not be relied upon completely.
There is a cap on the amount of expenditure that may qualify for BPRA of €20,000,000 per single investment project. A single investment project might be the renovation of a single building involving one or a number of participants; or groups of buildings in involving one or a number of participants where the outcome of the project is closely linked due, for example, its proximity. For the purposes of this limit, expenditure in sterling will be calculated into euros using the spot rate on the day on which the expenditure is incurred.
Individuals and companies which incur the capital expenditure and hold a relevant interest in the building can claim the 100% relief and deduct it from their trading profits.
For landlords the allowance will be treated as an expense of the property letting business. Those without a property business or a trade will be able to set the allowance against their other income. Property traders would not be incurring capital expenditure on conversion costs and therefore will not be able to claim.
Any BPRA claimed may be clawed back if the property is sold, demolished or ceases to be used for qualifying purposes within 7 years after it was first used or was first available and suitable for letting.
In July 2013 it was announced that HMRC would be conducting a technical review of the BPRA legislation, "with a view to making its policy purpose even clearer, so that the relief will be easier for both claimants and HMRC to operate."
HMRC said that this announcement was made against the background of recent DOTAS (Disclosure of Tax Avoidance Schemes) disclosures involving BPRA, "which appear to contain some features aimed at exploiting the relief in ways that Parliament had not intended". Various changes to BPRA are proposed including:
- changes to make it clear that BPRA is only available in respect of "bricks and mortar" costs and not those more associated with marketing a completed and successful income producing property investment;
- changes to address timing issues whereby allowances are brought forward because expenditure is contractually incurred a number of years before the building work is carried out or is incurred when the building has not been empty for at least 12 months; and
- a targeted anti-avoidance rule (TAAR).
If the government decides to proceed with these changes, a further consultation is likely in autumn 2013, with legislation in 2014.