There are many situations in which a tax loss may arise.
For example, in the initial set-up period of a new business, from normal trading experiencing a downturn or as a result of claiming Capital Allowances on eligible plant, machinery and equipment used in the course of the business.
With effect from 6 April 2013, there is a limit on the amount of income tax relief that an individual may claim for deduction from their total income in a tax year.
The limit in each tax year is the greater of £50,000 or 25% of the individual’s adjusted total income.
However, the Business Premises Renovation Allowance (BPRA) represents an exciting opportunity where the above restriction does not apply.
The BPRA is intended to give an incentive to bring derelict or unused business premises back into use.
BPRA gives an allowance of 100% for qualifying expenditure on converting or renovating unused business premises located in an ‘Assisted Area’ where this allowance creates a loss, the loss may be transferred ‘sideways’ without restriction, against the individual’s other income, thereby generating a tax refund.
Qualifying expenditure is expenditure on converting, renovating or repairing a qualifying building to bring it into commercial use.
Expenditure on purchasing or developing land is not eligible.
The building must be located in an ‘Assisted Area’. All of Northern Ireland is an ‘Assisted Area’.
Qualifying business premises are premises used or available for letting for trading purposes or offices. Premises used as a dwelling are not eligible.
To be eligible the building must have been vacant for a year immediately before the conversion or renovation begins. The last use must not have been as a dwelling.
The BPRA applies to 5 April 2017 and the property must be kept for five years in order to avoid claw back of the BPRA.
In the event of a sale of the premises, the base cost for Capital Gains Tax purposes is the actual cost incurred, the BPRA is ignored.
If the 100% BRPA is not claimed, a writing down allowance at an annual rate of 25% on the straight line basis is available until all the qualifying expenditure is allowed.
There are several options available to obtain tax relief for a loss and the possible permutations can be confusing.
There are strict time limits and tax rules to be met.
The BPRA is a particularly attractive ‘tax offering’ particularly for individuals who own vacant business premises in Northern Ireland.