Business Property Renovation Allowance - Are you claiming it?

Business Premises Renovation Allowance (BPRA) is designed to encourage the conversion and renovation of empty business properties in certain development areas by granting 100% tax relief for capital expenditure incurred in bringing them back into business use.

The relief was introduced in the Finance Act 2005, but due to lengthy negotiations with the EU over state aid, it only came into effect on 11 April 2007. The relief is temporary and is intended to expire 5 years after its introduction, on 10 April 2012.

If you think you might own eligible premises then you'll need to satisfy the following conditions: 

• The capital expenditure must be incurred in renovating or converting existing premises rather then demolishing and rebuilding.
• The building must be situated in a designated disadvantaged area as set out in the Assisted Areas Order 2007.
• The property must have been unused for a year or more prior to the renovation exercise beginning.
• It must have been last used for the purposes of a trade, profession or vocation or as an office (and not as a dwelling) and it must be used for one or more of these purposes after the renovation or conversion has been completed.
• Premises used in certain trades cannot qualify for the relief. Among these are fisheries and aquaculture, shipbuilding and the coal, steel and synthetic fibres industries.
• No relief is available for projects already receiving a relevant grant (which is notified state aid) towards the expenditure.

A full initial allowance of 100% can be claimed in the year in which the expenditure is incurred. If this allowance is not claimed in full in the first year, a writing down allowance of 25% based on cost can be claimed in subsequent years until tax relief has been claimed for the total capital expenditure on the project.

If the renovator is a company and the initial allowance creates either a trading or property rental loss, this can be offset against the company’s other income to effectively reduce the overall corporation tax liability. The rules are more complicated if the renovator is an individual but there is still scope for offsetting the loss against other income to reduce the overall income tax bill.

The relief will be clawed back if the property is sold, demolished or ceases to be used for a qualifying purpose within 7 years of its first use following renovation or conversion. However, sales and other events occurring after the end of this 7 year period will not lead to a clawback of allowances.

Steve Petty, Commercial Property Solicitor