Industrial Buildings Allowances

Industrial Buildings Allowances (IBA's) are available on capital expenditure incurred on buildings and structures used for a qualifying industrial trade, qualifying hotels and commercial buildings and structures in enterprise zones. In order to qualify for IBA's qualifying capital expenditure must be incurred on the construction of the buildings / structures and the taxpayer must hold the "relevant interest".

Below are brief explanatory notes regarding qualifying industrial buildings, qualifying hotels and qualifying expenditure. Further information can be found on our Datasheet No.2 IBA's and Datasheet No.9 Hotel Allowances

Additionally PJB can provide an initial no obligation assessment and clarification of entitlement upon request.

Writing-Down Allowances

Industrial Buildings Allowances (IBA's) are available at 4% per year on a straight line basis, thus a building first coming into a qualifying industrial use will be written-down over 25 years. To the purchaser of an existing property acquired after say 10 years of industrial use, the value of IBA's available would be written-off over the remaining 15 years.

The value of allowances to the purchaser of an existing property depends upon a number of factors, including the interest acquired, the age and the occupational history of the property.

Industrial Building - Qualifying Use

In order for expenditure on an industrial building to qualify for IBA's it must satisfy numerous conditions, including being used for a qualifying trade. For the purposes of IBA's a qualifying trade includes for example, manufacturing, the subjection of goods or materials to a process, in certain cases the storage of goods or materials, transport undertakings i.e. haulage firms, the Royal Mail, etc.

Hotels

Industrial buildings allowances are available on qualifying hotels when capital expenditure is incurred on the construction of a new hotel building, or alterations and/or refurbishment to an existing hotel building and they are also available to the purchaser of an existing hotel. However, any expenditure incurred before 12th April 1978 will not qualify for Industrial Buildings Allowances.

To be considered a qualifying hotel there are a number of conditions that must be satisfied:-

• accommodation must be in a building of a permanent nature.

• it must be open for at least 4 months during April to October.

• it must have at least 10 letting bedrooms, and the sleeping accommodation must consist wholly or mainly of letting rooms available for letting to the public and not normally in the same occupation for more than one month.

• the hotel services must include the provision of breakfast, an evening meal, cleaning of rooms and the making of beds.

Qualifying Expenditure

IBA's are given on the capital expenditure incurred on the construction of a new industrial building or hotel, or on expenditure incurred on alterations and refurbishment. Expenditure incurred on the land and the costs of landscaping and land drainage are not eligible.

Where expenditure incurred on the proprietors accommodation in a hotel, or non-qualifying elements of an industrial building (e.g. offices) exceeds 25% of the total cost, these costs are excluded from the IBA's.

When the relevant interest in an existing property is acquired and the property is less than 25 years old at the date of acquisition (50 years for Industrial Buildings constructed before 6th November 1962), the amount of allowances equates to the vendor's "residue after sale".

The residue of expenditure after sale is the vendor's tax written down value plus the balancing allowance or charge on the vendor.