Budget 2020 - Wish list for Eco friendly Buildings

Most tax commentators were surprised by the abolition of the 100% Enhanced Capital Allowances (ECAs) announced in October 2018 and taking effect from the end of March 2020 for corporation tax and 05 April 2020 for income tax.   ECAs were available against specific ‘green’ assets that provided exceptional (and validated by Carbon Trust) energy or water savings.  These accelerated capital allowances were seen as a ‘carrot’ to offset the ‘stick’ aspects brought to bear on property owners by MEES Regulations requiring EPC ratings to be improved to at least a category E or better, otherwise building leases could not be granted and for existing leases, no further extensions would be possible if the rating is not achieved before April 2023 (for commercial properties).  However, HM Treasury/HM Revenue & Customs (HMRC) felt the new SBAs on the balance of new construction expenditure (incurred on or after 29 October 2018) would negate the benefit of the ECAs at 100% relief. 

Within the Conservative Party Manifesto there was an undertaking to boost the SBAs rate from 2% per annum for 50 years to 3% p.a. – albeit 3% into 100% is more complicated - and thus an obvious choice would be 4% for 25 years – effectively replacing the former Industrial Building Allowances abolished by Gordon Brown in 2008 and phase out by 2011.

Whilst HM Treasury, HMRC and the Carbon Trust have been at pains to stress the on-going intention to retain the Energy & Water Technology Lists we have lobbied for an updated version of ECAs or ‘boosted’ SBAs where clear energy or water efficiency targets are achieved.  Of these we believe the simplest might be to tie the tax breaks into the existing BREEAM rating benchmarks.  Thus those new build projects currently eligible for 2% SBAs over 50 years could be boosted as follows:

• 50% SBAs over 2 years - for buildings achieving the very highest rating of ‘Outstanding'
• 25% SBAs over 4 years - for buildings rated as 'Excellent' and;
• 10% SBAs over 10 years - for buildings rated ‘Very Good’.

The lower categories, ‘Good’ and below, would remain at the normal default SBA rate – currently 2% over 50 years. According to BRE (Building Research Establishment) only the top 1% of new builds achieve the 'outstanding' level, and so the cost to the Exchequer would be minimal, whilst incentivising those that do achieve these higher energy efficient ratings to see a return on their environmental design efforts.  

Table 2.3 BREEAM rating benchmarks

We urge the Government to reinstate a clear tax based incentive for property owners to pursue ever improving environmental leadership as the Country seeks to achieve NetZero at the earliest opportunity, rather than by 2050, ensuring we can also help lead the world to be more responsible in properly considering the environmental consequences of our actions.

Lastly in an effort to achieve greater housing delivery we would further ask the Government to consider extending availability of SBAs to the ‘Build to Rent’ (BTR) sector.  Whilst we recognise HMRC does not wish to ‘open the flood gates’ on residential properties achieving tax relief; private residences, Assured Shorthold Tenancies and Homes of Multiple Occupation (HMOs) could be readily EXCLUDED from tax relief, yet large scale BTR projects with say, more than 25units per block/building, could become eligible for SBAs at the standard rate – subject to their individual BREEAM ratings achieved and the above boosted SBAs for the most environmental designs.

Budget day remains 11 March 2020 and we await Rishi Sunak’s first budget to see if a forward looking and brave Budget can really unleash the county’s potential – or simply perpetuate stifled and retro-thinking tax measures that fail to consider modern business structures and hope to proactively deliver housing growth?

If you wish to understand further how these changes could impact you and your business, please do get in touch.