Budget 2024 – Capital Allowances & Creative Reliefs
The budget giveth and the budget taketh away. The spring budget expanded the application of the Full Expensing relief, abolished the Furnished Holiday Letting rules and extended reliefs available to the Creative Industries, amongst other measures affecting businesses and individuals alike. Some of the main changes are explored below.
Furnished Holiday Lettings (FHLs) abolished
The FHL rules offered various tax benefits for properties offering short term lets, most typically Airbnbs. One of those benefits was the ability to claim capital allowances on plant and machinery expenditure incurred on the development, refurbishment and improvement of such properties.
From 6 April 2025, the FHL scheme will be abolished, for the purposes of reducing the incentive for lessors to go with short term lets instead of long term rentals.
Details of the impact on existing FHLs and the opportunities to claim on such properties in the run up to April 2025 will arise in due course.
Full Expensing Leasing Restriction to be removed
Full expensing offers companies accelerated allowances on plant & machinery expenditure in the form of 100% first year allowances for main pool expenditure, and 50% for special rate spend. This generous relief replaced the Super Deduction in April 2023.
Where assets were purchased for leasing, the relief was restricted for certain assets. As well as affecting certain leasing companies, this had additional impact on how development projects would be structured within a group. In the case where a property company held and developed a property, and leased it internally to an operating company, the restriction would apply.
With this restriction gone, companies are free to structure projects as they see fit, and leasing companies generally will benefit. Draft legislation will be shared in due course to set out the detail of the removed restriction.
Creative Reliefs
In the previous spring budget, two new expenditure credits were announced as replacements to five of the eight creative industry tax reliefs. The Audio-Visual Expenditure Credit (AVEC) will replace the current film, high-end TV, animation and children’s TV tax reliefs, whilst the Video Games Expenditure Credit (VGEC) will replace the existing video games tax relief scheme. The animation and children’s TV credits were eligible for a rate of 39%, whilst the film, high-end TV and video games credits were eligible for a rate of 34%. In reality, however, because of the 80% cap on qualifying expenditure these effective rates AVEC rates amounted to 31.2% and 27.2% respectively.
Changes announced at the spring budget mean that not only is the 80% cap abolished, but the film and high-end TV reliefs will also increase to 39%, meaning that all AVEC related reliefs will be the same from April 2025 when these changes come into force. As well as this, from 1 April 2025 UK independent films with a budget of under £15 million that meet the requirements of a new British Film Institute test can attract an even larger credit of 53%, and can claim this on expenditure dating back to 1 April 2024 where applicable.
For theatres, orchestras and museums, preferential post-COVID rates came into effect during October 2021 which were intended to be temporary reliefs to kick start these industries that were severely affected by the pandemic. The rates announced were 45% credits for non-touring productions and 50% for touring productions, with the credit relating to qualifying expenditure for the three relevant schemes: Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR) and Museums and Galleries Exhibition Tax Relief (MGETR).
It was announced at the spring budget that these rates would be permanently established at 40% and 45% for non-touring and touring productions respectively, and the MGETR scheme will now continue indefinitely (having previously been set to finish in March 2026). As such, all of the creative reliefs have been improved in this budget.
Other Reliefs
Changes to the Research and Development (R&D) tax relief scheme were announced in the autumn statement and are being implemented as planned from 1 April 2024, despite some murmurings that these may be delayed until April 2025. A merged scheme for period beginning on or after 1 April 2024 will apply to SME and large companies alike, with an exception for “R&D intensive” SMEs for whom at least 30% of their annual expenditure is incurred on R&D-related expenditure (40% for previous periods which straddle 1 April 2023).
Finally, in line with the previous eight years, there have been no changed to the Patent Box tax relief scheme. This scheme enables companies with qualifying intellectual property (broadly UK and European-registered patents) to pay a reduced corporation tax rate of 10% on eligible profits that relate to this IP. As the main rate of corporation tax is now 25%, this represents a substantial tax saving to eligible companies who have profits chargeable to the main rate.
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