The prospect of Freeports isn’t new and has been ongoing as part of the Brexit plans where the government committed to create up to ten UK Freeports. The eight final sites have now been identified with the intention to create hubs for global trade and investment across the UK. The aim is also to promote regeneration and job creation as part of the Government’s policy to level up communities.
The government have proposed a range of benefits for “Freeport tax site” areas. The Chief Secretary to the Treasury said he expected the first Freeports to be “ideally….operational by the end of the year” with initiatives for:
- Tax. This includes measures on: – Stamp Duty Land Tax (SDLT) Relief – Enhanced Structures and Buildings Allowance (SBA) – Enhanced Capital Allowances (ECA) – Employer National Insurance Contributions Relief – Business Rates
- Regeneration and infrastructure: successful bidders will be able to access a share of £175 million of seed capital funding, depending on the submission of an outline business case (OBC).
So, what do the tax benefits mean?
The package of tax measures relate to reliefs on purchasing land, constructing or renovating commercial buildings, investing in new plant and machinery assets and on business rates and employer national insurance contributions.
SDLT (Stamp Duty Land Tax) – Full relief from SDLT on land purchases or property within Freeport tax sites where that property is to be used in a “qualifying manner”. To qualify for the SDLT relief the land must be bought with the intention that it will be used solely; 1) by the purchaser for commercial trade; 2) be developed or redeveloped by the purchaser for use by anyone in a commercial trade; or 3) as a source of rents, provided those rents are generated by someone using the property for a commercial trade. The relief is not available to a purchaser for resale without developing or redeveloping the land.
SBA (Structures and Buildings Allowance) – An enhanced 10% SBA rate, for firms constructing or renovating structures and buildings for non-residential use within Freeport tax sites. The standard exclusions for SBAs apply, so landlords need to take care when granting leases so they retain benefits.
ECA (Enhanced Capital Allowance) – Enhanced tax reliefs for qualifying new plant and machinery expenditure incurred for the purpose of a limited number of qualifying trades in Freeport sites. See our previous blog on the new capital allowance measures.
Business rates – Full business rates relief available to all new and certain existing businesses from 1 October 2021 for a period of 5 years from the point at which the business first receives relief. The point at which a business first receives relief must be by 30 September 2026.
Employer National Insurance Contributions Rate Relief – The expectation is that employers operating in Freeports will pay 0% employer NICs for up to 3 years per employee with a £25,000 per annum threshold.
Freeports have come under criticism from some in that they may simply transfer business away from other areas of the UK, without increasing employment rate or the overall size of the economy.
However, our view is that, subject to the UK’s trade agreements, Freeports could provide valuable tariff benefits. These include duty deferral whilst goods remain on site and Customs duty exemption on goods imported into a Freeport, processed in to finished goods and then re-exported. Certainly, if they achieve the objective of assisting international trade and, in particular, trade with the EU, this is extremely important at this juncture.
In terms of tax reliefs, property landlords will clearly benefit less than trading businesses but as always the devil will be in the detail.