Experienced investors only – investment with up to 70% tax relief
Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.
Would you consider a property investment that injects new life into city centres – with income tax relief of up to 60%-70%? This is possible thanks to the little-known Business Premises Renovation allowance (BPRA). But only until the end of the tax year.
What is BPRA?
BPRA was introduced as an incentive to bring disused buildings in some areas back into business use.
The concept is simple. For instance, you buy an unused office block and turn it into a hotel, which a hotel operator then leases or manages.
Part or all of the renovation costs can be offset against income at your highest tax rate, so it’s particularly appealing to 45% taxpayers. Incidentally, hotels are attractive because once open they should generate an income for investors (likely to be taxable).
There are some restrictions, though. Only certain types of building in some parts of the country – assisted areas – qualify. Moreover, not all renovation costs qualify.
That’s why it’s normally prudent to invest through an experienced and knowledgeable BPRA manager.
How does the tax relief work?
The example below should give you an idea.
- The BPRA operator buys an old office building for £2 million and spends £8 million in renovations, a total cost of £10 million.
- The BPRA operator raises a £5 million bank loan and raises the remaining £5 million from 50 additional-rate taxpayers, each investing £100,000.
- Most of the renovation costs (let’s say £7.5 million) qualify for BPRA and the allowances are pro-rated amongst the 50 investors. So, each has a renovation allowance of £150,000 (£7.5 million/50).
- This amount can be offset against each individual’s income tax bill. A 45% taxpayer can get tax relief of up to 45%, up to £67,500 in this example, equivalent to 67.5% of the original £100,000 investment. A 40% taxpayer would receive up to £60,000 tax relief.
You only get tax relief at the rate at which you are taxed, so you might get a blend of basic, higher and additional-rate relief. This is typically claimed via your tax return. Any unused allowances can be carried forward into next tax year, but you first need to have offset all this year’s income. Tax rules can change and depend on circumstances.
The premises must be kept in use for at least 5 years, otherwise tax relief might be clawed back. Once the business is sold, any outstanding bank loan is paid off and any net surplus distributed to investors, subject to Capital Gains Tax.
What are the risks?
This is an overview of a high-risk and illiquid investment for investors who can adequately assess the risks. You could lose all the property or other assets invested. HMRC can demand tax relief is repaid at short notice if it believes expenditure is above market rate or artificially adjusted to avoid tax. Risks will vary depending on the investment and will be included in the relevant Information Memorandum.
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.