Industrial Buildings Allowances (IBAs)

It was announced in the 2007 Budget that the system of industrial buildings allowances (IBAs) is to be phased out.  The phasing-out will be achieved by reducing the rate of tax relief by one-quarter each year over 4 years.  So if a taxpayer is currently claiming tax relief of 4% per annum, this will reduce to 3% from April 2008, 2% from April 2009, 1% from April 2010 and nil from April 2011.  If a taxpayer acquires property second-hand and is claiming over the remaining IBA life, for example, say 10% over ten years, this will reduce to 7.5%, then 5% then 2.5% then nil.

In future, this will mean it is more important than ever to maximise plant and machinery allowances - for most taxpayers this will be the only way of obtaining any tax relief for expenditure on property.

Industrial buildings allowances are currently available for expenditure incurred on industrial buildings or structures, qualifying hotels, and commercial buildings or structures in enterprise zones.

An industrial building or structure is one which is in use for one of a wide number of activities, including for example, manufacturing, processing, transport undertakings and some storage applications. Whether IBAs will be available is not always obvious and with our advice many taxpayers have been able to claim IBAs, where they previously believed that none existed.

Qualifying hotels are hotels which comply with a number of conditions.

Enterprise zones are specially designated areas of special need. There are only a small number of these.

IBAs are particularly valuable because they are available for all expenditure incurred (except land), including ‘building’ or ‘premises’ assets which would not otherwise qualify for plant and machinery allowances.

Enterprise zone construction expenditure will attract a 100% initial allowance. For other non-enterprise-zone construction expenditure, IBAs are available at 4% per annum straight line.

However, for second-hand purchases, the rate of relief varies depending on the building’s age and tax history, and the allowances can be as much as 100% per annum, or as little as nothing. We have made many clients aware of opportunities to obtain tax relief on an accelerated basis and have then helped them to achieve this.