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Today (30 October 2024), in the first Labour Budget for 14 years, Chancellor Rachel Reeves announced various measures, including some announcements regarding future consultations on capital allowances.

Electric Charging Points – 100% allowance

• This 100% capital allowances for expenditure incurred on charging points for electric vehicles, will be extended to 31 March 2026 (Corporation Tax) and 5 April 2026 (Income Tax). 
• This is a further one-year extension.

Corporation Tax Roadmap – Capital Allowances

• Full Expensing (FE) – This regime for companies will be maintained (see below).
• Annual Investment Allowances (AIA) – The 100% AIA for upto £1m will also be maintained (see below).
• Capital Allowances Treatment
  • Guidance on what qualifies for different capital allowances will published / updated.
  • Predevelopment Costs – following the Gunfleet Sands case on offshore wind farms, a consultation will be undertaken later this year on the treatment of these costs.
  • Major Projects – Spring 2025 consultation on a new process for obtaining advanced tax certainty.
• Land Remediation Relief (LRR) – a spring 2025 consultation to review the effectiveness of LRR, to consider whether the relief is still meeting its objectives and is good value for money.
• FE and Leasing – the FE regime will be extended to leasing “when fiscal conditions allow”.

Furnished Holiday Lettings (FHL)

• As previously announced, the Furnished Holiday Lettings (FHL) regime is to be abolished from the operative date, being 6 April 2025 (Income Tax) and 1 April 2025 (Corporate Tax).
• It is currently possible to claim Plant and Machinery Allowances (PMA) within a qualifying FHL, but not a normal dwelling available for rent.
• From the operative date, new capital expenditure will no longer qualify for PMA in an FHL, instead the replacement of domestic items relief will apply.
  • This means that no relief will be available for capital items fixed to a property e.g. heating systems.
  • After the operative date, FHL properties will form part of the normal UK or oversea property business, along with any other non-FHL property.
• Importantly, as drafted, for any existing PMA pool you will continue to claim writing down allowances (18% or 6%, depending on the assets involved) after April 2025.
• Structures and Buildings Allowances (SBA) have never been available for an FHL.
• Actions and Opportunities
  • It will be worth identifying and claiming qualifying PMA assets for expenditure incurred before April 2025. 
  • Any PMA claims should then be included in the relevant tax returns, adopting the normal time limits for submitting and / or amending returns. 
  • Where the PMA claimed generates a tax loss, from April 2025, that loss can be set against normal property income. This compares favourably with the current regime, where FHL losses can only be set against FHL income.

As highlighted in the CT Roadmap, the AIA and Full Expensing are being retained.

Annual Investment Allowance (AIA)

• The 100% AIA is £1,000,000 and is the permanent level of AIA.
  • The AIA allows a 100% deduction for qualifying plant and machinery expenditure upto the AIA limit incurred in a business, company, or group of companies (but not a Mixed Partnership or Trust).
  • Given the Full Expensing regime only applies to companies, the AIA will still have value for qualifying partnerships, individuals etc.
    • Full Expensing typically forces a balancing charge on the disposal of an asset (see below).  If annual qualifying expenditure is below £1m, a claimant could consider using the AIA only. 
  • Above the AIA, the usual capital allowances writing down allowances apply. It is recommended to use the AIA against special rate expenditure first, including the 50% FYA noted below.

Permanent Full Expensing (Companies Only)

• Applicable for capital expenditure incurred from 1 April 2023, this is a First Year Allowances (FYA) regime applying for companies within the charge to Corporation Tax (CT) only (so not partnerships, individuals etc).
  • HMRC have confirmed that a company within an LLP can claim this FYA on its share of the relevant allowances.
• The rates are as follows:
  • Main (or General) Pool Plant is 100% (previously 18%),
    • Includes IT, furniture, security and telecoms systems, fire alarms, machinery etc.
  • Special Rate Pool becomes is 50% (previously 6%),
    • Includes heating, air conditioning, ventilation, hot and cold-water systems; lifts; electrical systems, solar panels; and long-life assets.
• Assets must be new and unused, so not second-hand.
• For a Property Company, the leasing exclusion does not apply to Background Plant and Machinery.
  • Background plant includes most normal systems fixed or adjacent a property.
• Does not apply to the general exclusions for FYA (CAA2001 s46 (2)) including the period where the qualifying activity is permanently discontinued; the provision of a car; gifted assets; leasing trades (e.g., ship chartering).
• For disposals, a balancing charge will apply:
  • For General Pool full expensing items, an immediate charge will be taken of 100% of the disposal value,
  • For 50% Special Rate, an immediate charge will be 50% of the disposal value, with the other 50% being deducted from the special rate pool.
  • For fixed plant (“fixtures”), the above can still be mitigated by completing a CAA2001 s198 election on sale for a low value.