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. The relief was tightened up with effect from April 2014 to prevent perceived exploitation of the 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 2014 to 2020 UK Assisted Areas Map was published on 30 April 2014, and was approved by the European Commission on 21 May 2014. The final Map is expected to be operational by July 2014.The building must not have been used at any time in the period of 12 months before the expenditure is incurred. 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.
The expenditure must be incurred on building works, architectural or design services, surveying or engineering services, planning applications or statutory fees or permissions. Other expenditure, such as on project management services, may qualify provided it does not exceed in total 5% of the expenditure incurred in relation to building works, architectural or design services and surveying or engineering services.
BPRA will not apply to any capital expenditure in buying the land, building extensions, or developing adjoining land. BPRA will only apply to plant and machinery if it is an integral feature for capital allowance purposes or is contained on a list of specific fixtures, which includes sanitary fittings, alarm systems and fitted cupboards. Integral features include lifts, air conditioning and electrical systems. The Out-law guide to capital allowances on property transactions provides full details.
BPRA will only available for expenditure to the extent that it does not exceed the market value for the works or services. BPRA claims cannot be made if a grant has been or will be received in relation to the building in question.
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.
Where expenditure is paid in advance and tax relief claimed immediately, the works to which that expenditure relates must be completed within 36 months or that relief will be withdrawn.
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 a certain number of years after it was first used or was first available and suitable for letting. For expenditure incurred after 1 April 2014 for companies or 6 April 2014 for income tax payers, this holding period is five years. For expenditure incurred before this time the period is seven years.
Collective investment structures
Various tax relief scheme promoters have established collective investment structures to enable individual taxpayers to invest in schemes qualifying for BPRA in order to obtain tax relief to shelter income tax liabilities. In 2013 HM Revenue & Customs (HMRC) issued a 'spotlight' warning that it was "aware of a number of tax avoidance schemes which aim to exploit BPRA. HMRC’s early enquiries indicate that almost all of these schemes are seriously flawed and HMRC will investigate anyone using them".
Accelerated payment notices (APNs) have since been issued to investors in a number of BPRA collective investment structures.