Tax breaks in Investment Zones

Location

The creation of Investment Zones (IZs), essentially an extension to the Freeports regime, was announced by the Chancellor at the Spring 2023 Budget. Two areas have already been designated: Liverpool and South Yorkshire. Further zones will be designated by the end of 2023.The tax sites within each zone offer possible tax advantages for five years, including enhanced capital allowances (CAs), a zero-rate secondary Class 1 NI for certain employees, stamp duty land tax (SDLT) relief and business rates relief.

Structures and buildings

If a company or unincorporated business incurs expenditure on a structure or building for use in its trade carried on in an IZ, it’s entitled to claim the enhanced structures and buildings allowance (SBA). Usually, the SBA deduction is equal to 3% per annum of qualifying expenditure on non-residential buildings and structures, but for businesses in an IZ the SBA rate is 10%, giving full relief within ten years.

Claims for the enhanced SBA should be made in the SBA part of the tax return and accompanied by an “allowance statement” (see The next step ).

Plant and machinery (P&M)

Companies, but not unincorporated businesses, can claim a first-year allowance on 100% of the acquisition cost of plant and machinery (P&M) that’s primarily for use in an IZ’s tax site. When purchased, the P&M must be unused, not second hand, and then utilised in the company’s trade. The enhanced CA should be claimed in the CAs section of the company’s self-assessment return.

National Insurance

Employers with a physical premises in an IZ’s tax site are entitled to a zero rate of Class 1 (secondary) NI for new employees who spend at least 60% of their working time within the zone. This zero rate can apply on the earnings of all employees newly hired up to £25,000 p.a. for 36 months per employee.

There are relaxations in the working time requirement where necessary adjustments have been made to accommodate the needs of disability, pregnancy or parenting.

SDLT

Relief from SDLT is available on certain acquisitions of land and buildings within IZ sites for purchases made from the date of designation until 30 September 2026. The land or property must be used in a qualifying manner, e.g. by the purchaser or connected person in the course of a commercial trade or profession, and must be so used during a “control period”, which is up to a maximum of three years from purchase.

Business rates

New businesses, and some existing ones, can also access full business rates relief in designated IZs in England.