Kevan Carrick of JK Property Consultants LLP, advised on the first wave of Investment Zones in the North East and is currently advising on two proposed Zones and Development Corporation proposals. He advised the Secretary of State for the Environment in the formation of the Tyne & Wear Development Corporation in 1986 and went on to advise on the delivery of major regeneration and development schemes.
Here, he looks at the Investment Zone proposals, put forward in the government’s mini budget.
The government is in early discussions with 38 authorities and the sites will benefit from a range of time-limited tax incentives over 10 years. Those under consideration are:
Business rates – 100% relief from business rates on newly occupied business premises and certain existing businesses. Councils hosting Investment Zones will receive 100% of business rates growth above an agreed baseline for 25 years.
Enhanced Capital Allowance – 100% first year allowance for qualifying expenditure on plant and machinery assets.
Enhanced Structures and Buildings Allowance – accelerated relief to allow businesses to reduce their taxable profits by 20% of the cost of qualifying non-residential investment per year, relieving 100% of their cost of investment over five years.
Employer National Insurance contributions relief – zero-rate Employer NICs on salaries of any new employee working in the tax site for at least 60% of their time, on earnings up to £50,270 per year, with Employer NICs being charged at the usual rate above this level.
Stamp Duty Land Tax – full relief for land and buildings bought for use or development for commercial purposes, and for purchases of land or buildings for new residential development.
What is the impact?
My assessment is that the proposals are reminiscent of the first wave of Enterprise Zones that encouraged the private sector to speculate the development of commercial property, where there is a risk of little or no demand.
At that time there was no risk of paying empty property rates. That risk appears to exist in the proposed Investment Zones and could be a serious deterrent to building commercial property as, after six months vacancy, empty rates will be payable until newly occupied. However, with the councils’ hosting the Zones there might be an amelioration of this risk by foregoing some or all empty rates for a period to make development viable and to kickstart a broken market.
All other fiscal proposals will be encouraging to the private sector to kickstart a stalled or broken market.
This should help to make space available where there is shortage and which retards or frustrates occupation by businesses because of shortage of space. For example, there is a shortage of factories. The risk, at present, is that the development of a factory is not viable. It can now be viable with these fiscal advantages.
There are significant advantages to the occupier with relief from the payment of business rates, enhance capital allowances for qualifying expenditure on plant and machinery assets, tax allowances on non-residential investments, NI employer savings, and Stamp Duty Land Tax. This help comes at a time when the costs of operating a business is volatile.
It is most important that the development of property should be at a quality that passes to the occupier significant reduction in occupation costs.
The overall impact, if the details are right in the final role out of Investment Zones, will be to accelerate the construction industry workload. But a word of caution, with shortages already in the system in skilled labour and ready availability of materials, there could be a hike in build costs and/or delay in delivery
