Finance Bill 2021 – Amendment to Super-Deduction

On 19 May 2021, the UK Government released draft capital allowances legislation that will allow landlords to obtain the benefit of the new 130% super-deduction for main pool assets ("super-deduction") and 50% first year allowance for special rate pool assets ("SR allowance").

Full details can be found here.

This welcome announcement should provide a meaningful incentive to landlords to undertake capital works over the next two years.

Following the headline Budget announcements on the 130% super-deduction and the 50% SR allowance, real estate investors were dismayed to find out that these would only be available to occupiers (and not landlords). Whether or not intended, the draft legislation was based on the ‘first-year allowance’ rules – which deny first year allowances being claimed on any plant and machinery fixtures that are leased to a tenant as part of a property lease.

In response, there has been a concerted lobbying effort to the Government by FTI Consulting, the BPF and others – underlining that if the measures are to stimulate investment in the economy they need to include major capital investors like the real estate sector.

The good news is that the Government listened and yesterday published an amendment to Finance Bill 2021. The amendment will now allow background plant and machinery in leased buildings to qualify for a super-deduction or an SR allowance, irrespective of whether it is an asset that is leased to a tenant. The amendment for background plant and machinery will cover more or less all the fixtures typically provided by a landlord. However it is worth noting that it should be expected that the greater part of a real estate investor’s expenditure on these fixtures will qualify for the 50% SR allowance rather than the 130% super-deduction.

For more information and answers to any questions, including how to take advantage of the enhanced deductions, please contact us here.