Allowance a welcome boost.
The Business Premises Renovation Allowance (BPRA) is a welcome boost for retailers and businesses aiming to renovate outdated, vacant premises.
It provides 100% capital allowances for the costs of renovating or converting unused business premises in disadvantaged areas.
The legislation came into effect for qualifying expenditure incurred on and after April 11. The Chancellor's latest Budget introduced changes to the proposed scheme (introduced in the Finance Act 2005), which property owners should take note of before applying for the allowance.
The Assisted Areas Order 2007 now defines disadvantaged areas as Northern Ireland and the areas specified as development areas on the British mainland including many boroughs within Northumberland, Tyne and Wear, County Durham and Teesside.
The scheme excludes premises that are refurbished or used by fisheries and aquaculture, shipbuilding, the coal industry, the steel industry, synthetic fibres, the primary production of some agricultural products and the manufacture of milk product substitutes.
The effect of the allowance is that costs incurred can be offset against the property income rather than having to wait until the properties are sold before offsetting the costs.
The allowance is available to both individuals and companies who own or lease business property that has been unused for 12 months or more.
Allowances are available to the person who incurred the expenditure and has the "relevant interest". However such expenditure must be "qualifying expenditure" on a "qualifying building" that creates "qualifying business premises".
Qualifying expenditure means capital expenditure on the conversion, renovation or repairs of a qualifying building into qualifying business premises.
The allowance will also apply to plant and machinery fixtures but not on the acquisition of land or rights over land, the development of adjoining land or the extension of a building except to provide access.
To qualify, a building must be situated in one of the disadvantaged areas, have been unused for a year or longer and have last been used for business premises ( not as a home.
For example, you could buy a property that qualifies for the allowance that costs pounds 100,000. You then spend pounds 20,000 making capital improvements to the building, which increases the value to pounds 150,000.
You can offset the pounds 20,000 cost of renovating the property against the rental income of other properties you own such as buy-to-let.
If the renovated property had not qualified for the allowance, then you would only be able to offset the cost until you sold the property.
The allowance aims to encourage business development. Having to leave premises empty for a year could be damaging.
It has been argued that the length of time the building is left vacant should be reduced to a minimal amount of time ( a day or a week ( to maximise the benefit to businesses. Related schemes encourage renovation of flats above shops, insulation installation and conversion of space into homes.
These are the landlord's energy saving allowance, VAT on residential conversions and renovations, and capital allowances on conversion of parts of business premises into flats.
Richard Freeman-Wallace is head of property at law firm Watson Burton in Newcastle