With Freeports now confirmed in Wales (Celtic Freeport covering Milford Haven and Port Talbot, and Anglesey Freeport in North Wales), and an Investment Zone confirmed for Northeast Wales, this guide highlights the key tax benefits available to businesses operating in or relocating to these zones.
According to UK government guidance, eligible companies can benefit from a package of incentives, including:
- 100% First-Year Allowances (FYAs) on qualifying new plant and machinery (including special rate assets)
- Enhanced Structures and Buildings Allowance (SBA)
- Full Business Rates Relief
- Employer National Insurance relief on new employees
- Relief from Stamp Duty Land Tax (SDLT) on qualifying land transactions
This article focuses primarily on capital allowances, namely FYAs and SBA, and how they can support investment.
What are First-Year Allowances (FYAs)?
FYAs allow UK companies to claim 100% tax relief in year one for qualifying expenditure on new and unused plant and machinery. This includes:
- Main rate assets (e.g. machinery, equipment)
- Special rate assets (e.g. electrical systems, air conditioning, lifts) which normally only qualify for 50% relief outside investment zones. The remaining 50% (not deducted) goes into the special rate pool for WDA at 6% annually.
This FYA regime within Freeports and Investment Zones is often referred to as an enhanced capital allowances scheme but should not be confused with the now-defunct Enhanced Capital Allowances for energy-efficient technology.
To qualify for 100% FYA in a Freeport or Investment Zone, the assets must:
- Be new and unused
- Be for use primarily within the tax site for at least 5 years
- Be used in a qualifying commercial activity
Examples of qualifying integral features include:
- Electrical systems, including lighting
- Heating and air conditioning
- Cold and hot water systems
- Lifts, escalators
- Solar shading
A full capital allowances survey is usually required to identify and value these items accurately.
Full Expensing
In addition to Investment Zone reliefs, UK companies can benefit from Full Expensing, a permanent capital allowances measure introduced from 1 April 2023. It allows 100% tax relief in the year of purchase on qualifying new and unused main-rate plant and machinery, with no upper limit. This applies nationwide and is available outside Investment Zones as well. Unlike the Annual Investment Allowance (AIA), which has a £1 million cap, Full Expensing offers uncapped relief but is limited to companies and does not apply to special rate assets (such as integral features) or used equipment.
Full Expensing provides a valuable cash flow advantage and should be carefully considered as part of any major capital investment strategy.
What level of tax relief could this mean?
For new industrial buildings, 15% to 20% of construction cost may typically qualify for capital allowances. For refurbishments, where plant and systems are replaced, 50% to 75% of spend may qualify.
Use the calculator on our website (https://www.caselect.co.uk) to estimate the potential tax savings.
Structures and Buildings Allowance (SBA)
The SBA allows tax relief on construction or renovation of non-residential buildings and structures. This applies whether or not the site is in a Freeport or Investment Zone.
- Standard SBA rate: 3% per annum on a straight-line basis over 33 1/3 years
- Applies to the cost of structure and building work, excluding land
- Does not include plant and machinery (those should be claimed separately under FYAs or AIA)
Enhanced SBA for Freeports / Investment Zones
Where construction takes place in a designated Freeport or Investment Zone tax site, an Enhanced SBA of 10% per year over 10 years is available for qualifying building costs, provided:
- The contract was entered into after 29 October 2018
- The site is within the designated tax area
- The expenditure is properly apportioned on a ‘just and reasonable basis’ if the building straddles a tax boundary
This offers a significant uplift in cash flow and tax savings compared to the standard SBA.
What qualifies for SBA?
Qualifying expenditure can include amounts incurred on structures and buildings, as well as incidental expenditure such as demolition works and/or land alterations. No relief is available in respect of expenditure incurred on the land itself other than the alteration/preparation of the land for the installation of a building or structure.
Qualifying expenditures does not include expenditure that would qualify for FYAs. Therefore, to benefit from an SBA, a business must first undertake a capital allowances exercise, which usually requires a site visit by a CA specialist. Businesses can continue to claim FYAs in respect of qualifying expenditure incurred on the provision of new plant and machinery, at the higher rates of annual relief.
What does this mean for Enhanced SBA?
Where the contract is in a Freeport site, UK tax paying businesses constructing a new commercial building or refurbishing an existing one, receive an enhanced SBA of 10% per annum over 10 years on the straight-line basis, as long as the contract was entered into after 29 October 2018.
If a building or structure is partly situated in a Freeport site, the expenditure must be apportioned on a ‘just and reasonable basis’ to determine the enhanced SBA. The relief can only be claimed for expenditure incurred from the date a Freeport and Investment Zone tax site has been designated.
Capital Allowances can be complicated. As part of your tax planning, our advice is to speak to a qualified professional who will assess your qualifying expenditure. For more information or for a no obligation discussion on your individual circumstances, please contact us at CA Select, details below.
Other tax incentives include
National Insurance Contributions
Businesses with a business premises inside a zone/site need to pay Secondary Class 1 National Insurance contributions if your employee earns more than the Freeport Upper Secondary Threshold of:
- £25,000 per year
- £2,083 per month
- £481 per week
This means that if an employee earns less than this, then no Secondary Class 1 National Insurance contributions are due (correct as of December 2023).
To claim the relief, all employees must:
- spend at least 60% of their working time in the Freeport tax site
- have started their employment between 6 April 2022 and 6 April 2026
- be within the first 36 months of their employment
- not have been employed by you or a connected employer in the previous 24 months
https://www.gov.uk/guidance/check-if-you-can-claim-national-insurance-relief-in-freeport-tax-sites
SDLT or equivalent
England – you may be able to claim relief from SDLT if you are buying land or buildings in a Freeport tax site in England
E.g. locating within a Freeport would save buyers purchasing non-residential land and buildings SDLT of 2% on the cost from £150,000 to £250,000 and 5% on the remaining cost from £250,001.
Scotland ― the Scottish Government plan to offer Land and Building Transaction Tax relief, subject to legislation agreement
Wales ― the Welsh Government plan to offer Land Transaction Tax relief, subject to legislation agreement
Business Rates Relief
In Freeports there is full, 100% relief from business rates (or non-domestic rates in Scotland and Wales) on qualifying new properties and partial relief for expanded properties in Freeport tax sites. This relief applies for 5 years from the point at which you receive it.
Businesses in designated areas in sites and zones will benefit from 100% business rates relief on newly occupied and expanded premises. Local authorities hosting zones and sites will receive 100% of the business rates growth above an agreed baseline in designated sites for 25 years.
