UK businesses and commercial property landlords in particular are set to lose £1.1bn from the cut in capital allowances announced in last month’s budget, according to Savills.
The Chancellor announced last month that the main rate of UK corporation tax would be reduced from 30% to 28% in order to make the tax regime in the UK more competitive in the global marketplace.
Savills’ capital allowances consultancy team argues this reduction will be financed primarily by big changes to the existing capital allowances regime, hitting businesses with substantial property-related capital assets.
Property investors and occupiers in the hotels, transport, utilities and industrial sectors will be hit by a net increase in their tax liabilities, it says.
This is because of the phasing out of industrial, hotel and agricultural building allowances by 2010 – 11.
There will also be cash flow implications relating to the deprecation for assets qualifying as machinery and plant, leading to an increase in taxation overall.
This is due to the existing tax relief rate being cut from 25% to at least 20%, and a likely 5% reduction from 15% to 10% on the vast majority of machinery and plant assets will apply from April 2008 onwards.
Neil Farquhar, head of capital allowances at Savills, said: ‘Sources at baa have indicated that the loss of industrial building allowances will increase the cost of their current £9.3bn development programme by 15%.
‘The initial view within the hotel sector is that the loss of hotel allowances has effectively increased the cost of operating a new hotel by 5%. Given this impact, it is perhaps not surprising that the changes have not been welcomed by the majority of businesses within these sectors.’