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The Budget of 23 March 2012 Announced a Number of Capital Allowances Changes

Please see our commentary on changes to the rules for capital allowances on plant and machinery fixtures and the tax allowances changes announced in the Budget of 21 March 2012.

1. Capital allowances – Fixtures 

Based on the draft Finance Bill Clause and Schedule published 29 March 2012:

    • From April 2012 a buyer of commercial property will need to fix the value with the seller within 24 months of the transaction to be entitled to claim allowances. This will be used by the seller as the disposal value and buyer as the claim value. The negotiation of the election value will be left to the parties to agree freely and commercially.
    • From April 2014 it will also be mandatory for the seller of commercial property to pool the value fixed with the purchaser, if they have not already done so in order for the purchaser, and subsequent owners to be entitled to claim allowances. The time limit is 24 months from the end of the accounting period of sale.
    • Where properties were acquired prior to April 2012 allowances can continue to be claimed under the existing rules at any time until sale. This means there is no time limit for claims on ‘historic expenditure.’
    • Allowances on plant and machinery will be available to the extent they have not already been relieved under the BPRA scheme.

The following are notable changes from the consultation draft legislation;

    • A narrowly defined exception to the fixed value requirement where a property is acquired from a person who is not entitled to claim allowances (example, a charity) who did not themselves fix a value when acquiring the fixtures from a past owner. To allow subsequent owners to establish entitlement to claim they may, (i) obtain a written statement from the non-tax paying seller that no value had been fixed with the past owner and (ii) written statement from the past owner confirming the disposal value, if any, he brought into account on disposal of those fixtures.
    • Similarly, where a non business owner not entitled to claim allowances, acquires a property in the period April 2012 to April 2014 the pooling requirement is disapplied. This applies where the period of ownership of the past owner ends no later than April 2014.

2. Budget 21 March 2012 – Tax Allowances

The Budget on 21 March 2012 announced a number of capital allowances changes effective from April 2012 as follows:

Cap on unlimited reliefs 

    • From April 2013 a limit on income tax reliefs will apply to higher rate tax payers seeking to  claim more than £50,000 tax relief per annum – the amount claimable will be capped at 25%  of income or £50,000, whichever is greater.  This is subject to consultation and guidance to  be issued.

Business Premises Renovation Allowances (BPRA)

    • The regime is extended for a further 5 years to April 2017
    • This 100% allowance is available for renovating and converting empty commercial properties in certain disadvantaged areas.
    • For expenditure incurred from April 2012, BPRA is limited to €20m per project.

Enterprise Zones

    • The government announced 100% first year capital allowances on plant and machinery  investment in 5 designated areas of Enterprise Zones in Scotland and Wales in addition to  those in England already announced.  Allowances will be available from April 2012.


    • The government confirmed the creation of Enterprise Zones for qualifying expenditure for 5 years from April 2012.


    • 100% First Year Allowances (‘FYA’) for expenditure by trading companies on new, unused (and not second hand) plant and machinery for use in designated assisted areas within enterprise zones.
    • Expenditure on assets for leasing is excluded.
    • Applies to UK resident companies subject to UK corporation tax only which excludes partnerships with corporate members and individuals.
    • Limit of €125m for each investment project.
    • Must create new or expanded business, not replace existing assets. For example, the air-conditioning system is stripped out and a new system is installed. This expenditure will not qualify for 100% FYA.

Feed in Tariffs (FITs) and Renewable Heat Incentives (RHIs) 

    • Enhanced capital allowances will not be available on plant and machinery for which tariffs are received from April 2012.


    • Solar panels are designated as Special Rate pool expenditure (8% per annum) from April 2012.

Enhanced Capital Allowances

    • The list of designated energy saving and water efficient technologies is to be updated in Summer 2012.

First Year Tax Credits for plant and machinery 

    • From April 2013 tax credits for expenditure on certain environmentally beneficial plant and  machinery that generates a loss are extended for a further 5 years to April 2018.

Simplification for small unincorporated businesses 

    • From April 2013 small businesses with receipts up to £77,000 (the VAT registration  threshold) will have the option to calculate tax on a cash receipts and payments basis. This may remove the need to pool capital allowances expenditure in some cases.

Other points

    • The main rate of corporation tax will reduce to 24% from April 2012, 23% from April 2013 and 22% from April 2014.
    • General Pool Plant writing down allowances will fall to 18% from April 2012.
    • Special Rate Pool writing down allowances will fall to 8% from April 2012.
    • As previously announced, from April 2013 flat conversion allowances and allowances for plant and machinery on safety at sports grounds are abolished.

(References above to April 2012 or 2013 mean 1 April 2012 or 2013 for corporation tax and 6 April 2012 or 2013 for income tax, unless otherwise stated.)

Please contact us if you have any questions.

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