CA94751 - Enhanced SBA in freeport and investment zone special tax sites: special tax site qualifying expenditure

CAA01/S270AA(2A), (5), S270BJ(2A), S270BNA, F(No.2)A 2023/S332(4)-(5), SI 2024/574

An enhanced rate of SBA is available for qualifying expenditure CA93000 incurred on buildings in special tax sites which meet certain conditions.

Special tax sites can be designated in respect of freeports or investment zones.  Maps of freeports and freeport special tax sites (GOV.UK) and Maps of investment zones and investment zone special tax sites (GOV.UK) provide maps of sites where the enhanced rate of SBA is available.

Qualifying expenditure is special tax site qualifying expenditure if it meets Conditions A-E in CAA01/S270BNA. These rules apply in the same way for special tax sites situated in ‘Green Freeports in Scotland’.

Special tax site qualifying expenditure is eligible for an enhanced rate of SBA. This enhanced rate of SBA, for a chargeable period of one year, is 10%. This is calculated on a straight line basis, which means that qualifying expenditure may be relieved in full over 10 years. For details of the standard rate of SBA see CA91300.

The amount of allowance that can be claimed for a chargeable period is calculated in the same way as with normal SBA but references to 2% or 3% are read as 10% and references to 50 years or 33 1/3 years are read as 10 years.

Condition A

The construction of the building must begin when the area in which the building is situated is designated as a special tax site.

Contracts

Construction begins when the first contract for works to be carried out in the course of the construction is entered into. This is the case whether or not the contract also relates to other buildings.

If any contract for construction of the building is entered into before the date the special tax site is designated, the enhanced rate of SBA will not be available on any of the construction costs of that building.

There is more guidance on construction contracts and determining when construction begins when there is no contract for construction at CA90200.

Building already in use

Where a building, which was brought into use at a time when the area in which the building is situated was not a special tax site, undergoes renovation, conversion or repairs that are incidental to a renovation or conversion, this is treated as if it were construction of that part of the building for the first time. The expenditure on these further works may qualify for enhanced SBA provided the qualifying conditions are met.

Condition B

The building must be first brought into qualifying use at a time when the area in which the building is situated is designated as a special tax site and on or before the applicable sunset date in relation to the special tax site concerned.

The applicable sunset date in relation to the special tax site concerned

The applicable sunset date is:

  • 30 September 2031 for special tax sites in English freeports
  • 30 September 2034 for special tax sites in Scottish and Welsh freeports and all investment zones.

Condition C

The qualifying expenditure must be incurred at a time when the area in which the building is situated is designated as a special tax site and on or before the applicable sunset date in relation to the special tax site concerned.

Condition D

The person who incurs the qualifying expenditure must be within the charge to income tax or corporation tax when it is incurred.

Condition E

The allowance statement made by the person who incurred the qualifying expenditure, and relied on for the first valid claim for the enhanced SBA, must state that the person wants the qualifying expenditure to be special tax site qualifying expenditure.

Example

A special tax site was designated on 19 November 2021. Freeport Investments Ltd entered into a contract on 1 December 2021 for the construction of a new warehouse for storage of imported goods.

The company incurred £1,000,000 of qualifying expenditure at regular intervals in 2022 and first brought the warehouse into use in its business on 1 January 2023. The warehouse was wholly situated within the boundaries of the special tax site.

The company prepared an allowance statement stating that it wanted its qualifying expenditure to be special tax site qualifying expenditure and recording £1,000,000 as special tax site qualifying expenditure.

The company’s chargeable period is the calendar year. In the chargeable period to 31 December 2023, the company is entitled to claim enhanced SBA of £100,000 (10% x £1,000,000 = £100,000).