Tax Incentives for Green Property Investment & Sustainable Development

Capital Allowances have always primarily been an incentive to encourage investment in either certain types of property (e.g. hotels) or particular types of assets within property (e.g. plant and machinery).

However as climate change and pressure to re-use existing land resources becomes increasingly important agendas for the UK Government, the emphasis of tax incentives for property has switched over the past number of years towards green and reusable forms of development.

Some of these incentives have been around for a number of years but taken in the context of additional measures announced in the March 2007 budget together they form a very attractive package of potential tax relief for investors in “Green” property.

You can find more information on each of the measures elsewhere on our website but they are summarised here for your convenience.

Enhanced Capital Allowances

Part of the Government’s response to carbon emission targets set out in the Kyoto protocol, ECAs were introduced as a 100% First Year Allowance for investment in qualifying energy-efficient plant or machinery. They are particularly valuable with the likely forthcoming reduction in the plant and machinery writing down allowance (WDA) rate from 25% to a probable WDA of 10%. ECAs are also now available for investment in Water-Efficient Technologies.

Land Remediation Relief

LRR is a 150% tax allowance for expenditure incurred in bringing land in a contaminated state back into use for property development. The scheme itself is the subject of a consultation process at the moment but currently encompasses expenditure on such items as land previously contaminated by use as, for example, a petrol station or the removal of asbestos in existing buildings

Business Premises Renovation Allowance

Again this is a 100% FYA for expenditure incurred bringing disused buildings back into business use in “disadvantaged areas”. The building must have previously been used as a business premises and it must have been disused for a period of a year or more. A disadvantaged area is defined by reference to The Assisted Areas Order 2007 No 107 and to establish if a particular building is in a disadvantaged area, there is a DTI postcode-checking tool at www.dtistats.net/regional-aa/aa2007.asp

Flat Conversion Allowances

Aimed at injecting new life into towns and cities, this measure gives a 100% FYA against expenditure incurred converting vacant space above shops into residential property. The expenditure must be incurred on a “qualifying flat” in a “qualifying building” and the rules governing the definition of these terms are complex and restrictive. The intention is there nonetheless to encourage the re-use of previously vacant property for residential letting purposes.

Budget Statement March 2007

Whilst the March 2007 Budget did not introduce any really new measures to encourage investment in “Green” buildings, it removed capital allowances for hotels and industrial property and proposed reducing the plant and machinery rate from 25% to a probable 10%, Definitely this carrot and stick approach has forced certain property sectors to consider using energy and water-efficient technologies. The hotel sector in particular where previously maximising plant and machinery allowances represented only a timing difference, now has to maximise investment in energy-efficient plant to obtain any significant cash flow benefit at all.