A tax incentive scheme designed to reinvigorate some of the UK’s most deprived areas is going largely unnoticed, according to Grant Thornton UK.
The business advisory firm says hundreds of potentially lucrative development opportunities in regeneration hot-spots such as Glasgow and Dundee, are vacant thanks – in part – to a lack of awareness about the Business Premises Renovation Allowance (BPRA).
BPRA is a tax incentive designed to encourage the redevelopment of empty buildings in disadvantaged areas. The scheme can give businesses a 100 per cent tax deduction for any qualifying capital expenditure incurred, reducing financial risk and increasing the potential for long-term returns.
Introduced in 2007, the scheme is gaining ground but at a slow pace. In Glasgow, the former St. Andrew House building on Sauchiehall Street was the first office block to mixed-use conversion in Scotland to benefit from BPRA. The 1960s high-rise building, which now houses a Premier Inn Hotel, office and retail space, was internally refurbished while the exterior was transformed with new high-tech modular curtain walling at a total cost of GBP27.5m. Currently there are a number of hotel conversion deals underway in Glasgow city centre using the BPRA scheme.
Bryan Crawford, head of capital allowances at Grant Thornton, says: “The Sauchiehall Street development is a prime example of the opportunities available to developers and investors with BPRA. The scheme was created to encourage the re-generation of disused commercial premises, which covers large parts of Scotland. It may come as a surprise, but this even covers highly lucrative areas such as Glasgow’s Merchant City, so there is real scope for developers to tap into the programme and make significant returns.
“When deals are structured through a partnership of tax-paying individuals who are able to use the allowances generated against taxable income subject to the additional income tax rate of 45 per cent, compared to an upper corporation tax rate of 21 per cent, the benefits and attractiveness can be considerable.
“What is important to remember is that BPRA schemes are not just a tax shelter but an exposure to a commercial property investment and, like any property investment, the financial performance of the tenant, experience of management team/operator, nature of asset and associated rental terms will all be critical factors to their success.
“Another important area to consider is that, understandably, HM Revenue & Customs are paying very close attention to both the promoters and investors in BPRA schemes to ensure all claims are legitimate and correct. Anyone involved in these arrangements should expect an enhanced level of scrutiny under the government’s disclosure of tax avoidance schemes (DOTAS).”
Potential investors are being warned to be aware of arrangements that promise too much. However, structured correctly BPRA schemes can be a legitimate and very efficient planning tool.
Richard Hart, senior associate with solicitors Anderson Strathern’s commercial real estate department, says: “Given the lack of development activity since the start of the recession BPRA schemes which help facilitate development are more than welcome.
“Having recently been involved in a BPRA deal for the conversion of office premises into a hotel it is clear that, structured properly, these deals can be attractive, even in the current climate. We know of at least four ongoing hotel projects in Glasgow city centre taking advantage of BPRA relief, in at least two cases attracting new hotel brands to the city for the first time.
“Whilst it is the hotel sector which is visibly taking advantage of the scheme but the relief could apply to other types of commercial property. Not every development will meet the BPRA criteria and the pre-conditions may not suit every deal but, as clients of ours have found, it is certainly worth considering the scheme and the potential advantages that it can offer.”