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Sting in tail for property firms; IN ASSOCIATION WITH Rensburg Sheppards View point.

Byline: by Tony Llewellyn, managing partner of cost consultancy, Davis Langdon Crasher & James.

THE reduction in corporation tax rate from 30% to 28% should be good news for all companies, but there is a sting in the tail for property investors - the changes will be paid for by a reduction in capital allowances.

However, the property investment sector, as a major capital investor, is likely to be a net loser in the new arrangements.

Not only are industrial building allowances to be withdrawn from 2008, but plant and machinery allowances are to be reduced. The legislation is yet to be clarified, but it is likely that allowances on plant fixtures in buildings, such as heating, air conditioning, lifts, etc, will be reduced to 10%.

As an illustration, the tax saving achieved on a city centre office building will be reduced by approximately 10%, while a hotel investor could be as much as 50% worse off.

What has yet to be established is the interpretation of the reference to "certain fixtures integral to a building" and the 10% writing-down allowance applicable to these. If this were to refer to plant and machinery fixtures, which currently are being considered for the 20 % future allowance, there would be a further significant fall in tax relief for these items.

The impact on REITs is not likely to be significant, other than to make the running of a shadow tax regime more complicated to administer.

It is not all bad news, as we will finally see the introduction of a Business Premises Renovation allowance.

Impact on REITS is not likely to be great
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Title Annotation:Business
Publication:Daily Post (Liverpool, England)
Date:Mar 28, 2007
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