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On 6 March 2024, Chancellor Jeremy Hunt’s Budget announced various measures, including some changes to capital allowances.

Full Expensing (FE) and Leasing

• Draft legislation will be published, subject to consultation, to extend the FE regime to leasing.
• This will apply “when fiscal conditions allow”.

Furnished Holiday Lettings (FHL)

• The FHL regime is to be abolished from 6 April 2025.
• It is currently possible to claim Plant and Machinery Allowances (PMA) within a qualifying FHL, but not a normal dwelling available for rent.
  • Draft legislation is yet to be published, so it is unclear how current or planned PMA claims will be treated from that date.
• Structures and Buildings Allowances (SBA) are not available for an FHL.
• Abolishing the FHL regime is likely to lead to annual savings of £180m / year by 2027/28.

An update was provided in relation to the new Investment Zones regime.

Investment Zones / Freeports

• Budget 2023 announced 12 growth clusters to cover the following areas:
  • West Midlands, Greater Manchester, the North-East, South Yorkshire, West Yorkshire, East Midlands, Teesside, and Liverpool.
  • There are also planned zones in Wales (Cardiff / Newport and Wrexham / Flintshire), Scotland (two) and Northern Ireland.
  • A further announcement on 6 of the English zones was announced in today’s Budget here.
• The Investment Zones tax relief will last for 10 years and matches the Freeports regime.  Details of the “Special Tax Sites” regime are included below:
  • 100% Enhanced Capital Allowance available to companies installing new or unused qualifying plant and machinery.
    • ECA available for all qualifying activities, including a property business, when assets primarily used in the special tax site.
  • 10% Enhanced Structures and Buildings Allowance (SBA) available to businesses for qualifying assets .
    • SBA available where the first contract for construction is dated on or after the date the Freeport site / Investment Zone is designated.
    • Freeport SBA requires assets to be brought into use before 30 September 2031 (England) or 30 September 2024 (Scotland and Wales).

No changes below, but a useful reminder, particular for the AIA as this applies to a qualifying entity (so not Mixed Partnerships or Trusts).

Annual Investment Allowance (AIA) 

• The 100% AIA is £1,000,000 and is the permanent level of AIA.
  • As a reminder, 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.
    • We understand that HMRC are contacting tax payers who have claimed AIA in a group or under common control, where they consider claims may have exceeded the £1m annual limit.
  • 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.  If annual qualifying expenditure is below £1m, a claimant could consider using the AIA only.  The disposal value would then be adjusted through the relevant capital allowances pool, so a balancing charge might be avoided, depending on the pool value.
  • Above the AIA, the usual capital allowances writing down allowances apply.
  • It is recommended to use the AIA against special rate expenditure first, as the AIA provides more tax relief than the 50% rate noted above.

Permanent Full Expensing (Companies Only)

• 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.
• Applicable for capital expenditure incurred from 1 April 2023, with rates as follows:
  • Main (or General) Pool Plant is 100% (previously 18%, ignoring the temporary Super Deduction),
    • Includes IT, furniture, security and telecoms systems, fire alarms, machinery etc.
  • Special Rate Pool becomes is 50% (previously 6%, ignoring the temporary SR Allowance),
    • Includes heating, air conditioning, ventilation, hot and cold-water systems; lifts; electrical systems; and long-life assets.
• Assets must be new and unused, so not second-hand.