Davis Langdon survey reveals 70% of respondents dissatisfied with the withdrawal of Industrial Building Allowance

A recent survey of the proposed changes to capital allowances has revealed that nearly 70% of respondents think that the withdrawal of the Industrial Building Allowance (IBA) would have a negative impact on their businesses.

The survey, organised by the property finance consultant Davis Langdon Crosher & James, conducted among thousands of property owners, occupiers, accountants, surveyors and lawyers, uncovered industry wide concern for the proposed changes, which are currently the subject of an continuing consultation with HM Revenue & Customs.

As part of the reforms, the proposals also include a reduction of the main rate of capital allowances to 20% and the introduction of a new 10% rate for integral fixtures as well as changes to the payable Enhanced Capital Allowance (ECA).

When coupled with the withdrawal of the Industrial Building Allowance, this will have a particularly negative impact on the hotel sector. The nature of the withdrawal means that assumptions made in investment appraisals for projects are now wrong and businesses are effectively subject to retrospective taxation.

Andrew Green

Andrew Green, partner at Davis Langdon Crosher & Jame, said: "The government needs to take a more holistic approach to energy efficient buildings. It needs to abandon the suggestion of giving capital allowances on more specific building features in favour of giving a lower rate of allowance on those buildings that meet the highest standards in terms of energy efficiency and environmental impact.

"Only 3% of owners and occupiers thought the current proposals to treat environmentally friendly building features as integral fixtures would be effective, and most believed that tax incentives based around the forthcoming Energy Performance of Buildings Directive would be preferable.

"Three quarters believed green incentives of some sort would increase their investment in energy efficient measures but over 90% admitted they would be more likely to invest in energy efficient measures if prospective tenants had this as a priority when taking a lease."

The survey also found that:

• 90% of respondents utilise all available Capital Allowances and 65% "always" or "sometimes" factor in their value when appraising new schemes. The proposed changes will potentially disadvantage any business that incurs significant amounts of capital expenditure on real estate.
• The scheme for rewarding investment in environmentally plant and machinery in the form of Enhanced Capital Allowances (ECA’s) appears to be lacking. Over 70% of respondents admitted they had never made a claim for Allowances under the current ECA scheme.
• Current environmental initiatives and incentives although many were sceptical over the effectiveness of the current proposals for treating environmentally beneficial building features as integral fixtures.