A Southampton-based property tax specialist has urged chancellor Rishi Sunak to rethink his ‘grossly unfair’ super-deduction giveaway announced in the budget.
The £25 billion measure was hailed as the ‘biggest business tax cut in modern history’ – allowing companies to reduce their tax bill when they invest in their business by 130% of the cost. But the flagship policy has been branded a missed opportunity after closer analysis by property tax specialists E3 Consulting because it excludes some types of businesses.
Managing director Alun Oliver FRICS, who co-founded E3 with wife Nicky in 2003, said: “The super-deduction was heralded as the chancellor’s ‘rabbit out of the hat’ at the budget. A new and untested enhancement to the UK capital allowances regime, it is clearly intended to encourage companies to expedite any investment and the Government no doubt wants to see it act as a catalyst to wider economic activity.
“Whilst any boost to capital allowances is always welcome, on closer examination it is disappointing to see the measure only applies to companies, who are subject to corporation tax. This appears to be grossly unfair, given that much economic activity is through other corporate entities such as limited liability partnerships (LLPs), individuals or ‘old style’ partnerships.
“GP surgeries, engineering firms and professional services including lawyers and architects are all among those often structured as LLPs as well as the UK farming sector – all of which will not benefit. Furthermore, a great deal of property investment is carried out through LLPs. As it stands, the super-deduction represents a missed opportunity to encourage even greater investment.
“I urge the chancellor to think again and consider the inclusion of those corporate entities which are set to miss out – that will undoubtedly reduce the impact of these investment measures.”
Oliver added: “The super-deduction also adds a level of complexity to the allowances which apply. The timings will complicate interaction with integral feature allowances (IFAs) subject to the 50% first-year allowances and the existing 100% relief through annual investment allowances (AIAs) on the first £1m until 31/12/21.”
Under the super-deduction, from April 1, 2021, until March 31, 2023 companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. For example, a company investing £10m will be able to reduce its overall taxable profits by £13m. This upfront super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.
Investing companies will also benefit from a 50% first-year allowance for qualifying special rate, including long life, assets. According to Companies House, there are more than 50,000 LLPs in the UK, plus more than 50,000 limited partnerships.
E3 Consulting is headquartered at Ocean Village in Southampton with offices in London and at the Peartree Centre in Ferndown. It provides specialist property tax advice to owners, investors and occupiers of UK real estate. The business advises on capital allowances, land remediation relief, VAT, repairs and maintenance and community infrastructure levy (CIL).