Development Checklist No 7 - Capital Allowances Update 2 (21 October 2011)

Check 7.1: Check whether the development or project  is of compliant in respect of one or more conditions or caveats applicable to a particular capital allowance. The conditions include the likes of the following:

• it is a building of a particular type;
• it is located where a particular allowance is available;
• the "timing" of the project fits the scheme of the allowance;
• it is a fixture in or integral feature of a building used for business; and,
• it complies with other conditions for a particular allowance.

Check 7.2: Check the at an early stage of the project, eg at the design stage, that expenditures can be identified as capital expenditures and whether an allowance is available.

Check 7.3: Ensure that the appropriate records are made for tax calculations, etc.

 Fit
If any "fit" under the Checks above is obtained, the capital expenditure can be "annualised" as a capital allowance and hence be used to reduced net taxable income for income tax purposes. In some instances the cost of works may be "splittable" into:

1. revenue expenditure (allowable as a whole); and,
2. capital expenditure which may be further split into a)that treated as a capital allowance allowable and b) "pure" capital expenditure.

The last item [2(b)] should be recorded as capital expenditure - it may then be used in any calculation for capital gains tax  on any future disposal of the building.

Most of these matters will be covered in detail by the accountant, lawyer or specialist professioanl surveyor.

Availability
When applicable capital allowances are normally available in respect of business premises, and of  property held by an investor. They include the following:

• Business Premises Renovation: In a "disadvantaged area" capital allowances may be claimed for expenditure on works of renovation to  business premises. A number of conditions must be confirmed before the allowance is given. It is due to end in 2012!
• Flats: Where flats are installed by converting upper floors above shops and other commercial ground floors in buildings, the expenditure  is available for capital allowances. Many conditions apply!
• Integral Features to Buildings: Capital allowances may be claimable in respect of expenditure on certain features regarded as integral to business buildings, eg a cold water system. A number of such features are listed; again conditiona apply!
• Plant and Machinery: For buildings used for business purposes a substantial number of certain types of plant and machinery installed into them may result in the cost being allowable (the buildings do not include residential investments). 
• Thermal insulation; Expediture on thermal insulation installed in an existing business property, such as industrial buildings, offices, and shops,  is available for a capital allowance. 

Development Process:

• Property acquisition: Check when building is purchased on the availability of any unused capital allowances hitherto available to the vendor.
• Design:  Check that at the design stage the best options for capture of capital allowances are considered and, if appropriate, adopted.
• Finance and funding: Check that the construction records and accounting systems "pick up"  records of:   a) revenue expenditures on repairs and maintenance; b) capital expenditures on new build and improvements, c) apportionments of appropriate expenditures, ie between repairs and improvment [Please note this is for purposes of income taxation. capital gains taxation and capital allowances.]

Development Checklist No 5 - Income Taxation No1 Developer's / Owner's Objectives (Update 1 13 October 2011)

Check 5.1  Check the owner's / developer's objectives so as to become aware of any income taxation implications and hence prepare compliance activities if appropriate.

Check 5.2 Check all development expenditures and become aware of the differences in tax treatment for capital expenditure and revenue expenditure.

Check 5.3 Check capital expenditure for capital allowances. Some capital expenditures may be annualised as capital allowances and taken off net income in income taxation calculations.

Objectives
Checklist 1A examined the objectives of the owner/developer of land  or land and buildings. This checklist (No 5) reviews the income taxation implications of those with various objectives. Generally, a landed property is regarded as a capital asset. If appropriate capital gain tax will arise on a disposal or part disposal. However, the landed property of a dealer in landed property is regarded as "stock-in-trade". Thus, if a dealer brings a capital asset into stock, a tax adjustments may be required.

Compliance
The owner / developer will normally be advised on statutory compliance for specialist taxation purposes by professional advisors, eg accountant, solicitor or surveyor.

Residential : Generally the owner / developer of residential property for his or her own occupation is not liable to income taxation on their occupation. If part of the owner-occupied property is let or a business is conducted a liability to income tax may arise. Possibilities include:

• Accommodation is let - a liability to income tax on the net income arises - but it may be given relief under the "rent-a-room" provisions. There is a requirement to notify HMRC in the annual tax return.
• Bed and breakfast business is conducted at the dwelling liability arises on the net income. Again the income should be declared.
• Some business or artistic enterprise is conducted, eg writing, painting, sculpture, or on-line sales, resulting in income taxation on the net income. (Working for an employer from home would not normally result in income tax other than normal income tax on salary or wages.) 

Business : Net profits from a business conducted in a shop, workshop, showroom etc will be liable to income taxation. Any rent or premium paid for the property will be allowed in some way as business outlay or expense.

Dealing : Buying and selling property for profit will result in the net profits from the dealing in property to be liable to income taxation.

Investment : Net rental income from letting property (an investment in property) is liable to income taxation.

Objective: Generally,property occupied for charitable or public purposes will not be liable to income taxation.

Functional : Where property is owned by a utility as a business, eg a private sector company, the business will be treated as business for income taxation purposes.

Please note: "Income taxation" cover income tax or corporation tax. One or other of these two will be charged according to whether the "person" is an individual or an "organisation".

Development Checklist No 6 - Local Taxation No 1 - Council Tax

Generally developers of houses and other dwellings are active in the following kinds of development opportunities:

1. developing greenfield or brownfield sites with houses and flats;
2. carrying out regeneration projects involving new dwellings or upgrading existing houses, etc;
3. carrying out major reconstructions of commercial and industrial buildings;
4. converting existing dwellings into one or more flats or apartments; and,
5. putting flats or maisonettes into the vacant upper floors of high street retail premises.

Either the developer or the occupier (or owner) of each completed dwelling will become liable for council tax at some date.

Demand for Council Tax
A developer of one or more unoccupied completed dwellings must comply with any proper demand issued by the billing authority for the payment of council tax (unless the dwelling is occupied or disposed of to a third party).

Completion Notice Trigger
The Local Government Finance Acts 1988 (schedule 4A) and 1992 (section 17) provide the mandatory statutory requirements to initiate:

1.  the procedure whereby dwelling(s) are entered upon the valuation list; and.
2.  the payment of council tax.

The billing authority will issue a completion notice which states the date when the authority reasonably expects the building to be completed. 

Council tax becomes payable on the date which is the earlier of:

• the first date of occupation of the dwelling; and
• three months after the completion notice.

Development Checklist No 13 - Owner's/Developer's Objectives for holding Land (Update 1- 23 October 2011)

Check 13.1:    Establish an awareness of the developer'e / landowner's objective(s) in owning land.

A person (owner/developer) holds an estate in land with a particular objective in mind; perhaps even more than one objective. The prime objectives are categorised below. (Here a "person" is an individual or organisation with legal personality, such as a company, a trust, or a partnership.)

The importance of the objective of a person in holding property lies in the statutory regime which affects such ownership. For instance, dealers in land, eg housebuilders, are treated differently for taxation purposes than say, a housing association holding dwellings to let. (See Checklist 15 Captial Taxation and Income Taxation.)


Objectives of Land Ownership:

Residential - a person acquires a dwelling or develops land as a dwelling for personal use. 


Business - a person acquires or creates business premises from which to run a business (retail, manufacturing, service provider etc,) for commercial profit.

Investment - the owner buys property or develops land with the intention of letting it for rent or rent and premium.

Dealing - a person buys a property or develops land with the intention of reselling for commercial profit.

Recreational - person buys or creates a property for personal recreational use.

Objective - a person buys or develops property for altruistic reasons, a charity's orphanage.

Functional - a person holds or creates the property so as to provide a function to support or protect other land, eg holdings of government departments such as the Defence Estate or a local authority estate. On privatisation, towards the end of the 20th Century many functional holdings transferred into private sector to come within the business objective.

Development Checklist No 4 - Planning - Needed or Not...? (Update 1 - 12 October 2011)

Checklist No 3 has pinpointed such matters as designated areas and affected buildings. This checklist reviews the mandatory aspects of getting planning permission for development, ie after such as matters which do not require planning permission have been dealt with, ie covering the likes of:

Checklist 4A - Planning Permission not Needed

This section is a check to ensure that planning permission is not needed for a particular operation, building works or change of use. A check is needed to consider whether the "project" is one of the following:

• works etc which are not development within the definition of development;
• permitted development within the General Development Order;
• change of use within a class of the Use Classes Order.

Normally they will not require an application but there are exceptions.

Checlist 4B - Planning Permission
Having established that a proposal will most likely need planning permission, certain practice and statutory requirements may need to be fulfilled, including:

Planning History

Planning Application

Certificates of Land Ownership

Demolition:  Depending upon the circumstances demolition of the whole or part of a building or structure may require:

• planning permission;
• listed building consent: or
• conservation order consent..

Environmental Impact Assessment and Statement
Projects are categorised as being Schedule 1 and Schedule 2 (see SI XXXXXXX). If they have a significant impact on the environment a planning application must be accompanied with an environmental statement. 

Energy

Sustainability

Transport

Development Checklist No 3 - Consents etc in certain Designated eg Areas, Buildings, etc (Update 2 - 17 October 2011)

Check 3.1 Check that the land or project is not affected by any of the designated areas, buildings etc listed below.
[Please Note The list is a partial list which will be amended and added to shortly.]

Generally, planning permission for development or other works will either be refused or granted subject to conditions which are imposed to protect the heritage asset, area etc.

1. Ancient Monument: An ancient monument is protected.
2. Area of Archaeological Importance - Ancient Monuments and Archaeological Areas Act 1979 designates certain areas as such by order of a minister etc. Any intended development operations etc which disturb the ground requires an operations order from the local authority. The process usually results in an archaeological dig etc. 
3. Common Land - Commons Act 2006 section 38 - requires the consent of the Secretary of State (Planning Inspectorate) for development or works on common land.  Certain works are exempt from this requirement. [This is in addition to any planning permission or development consent which may be required.
4. Conservation Area - Planning legislation requires conservation area consent for development or works in a conservation area. There are certain exceptions.
5. Hedgerows - 5.1 Certain hedgerows are described as important hedgerows and must not be uprooted without the consent of the local authority. 5.2 Certain overgrown evergreen hedgerows may be designated by the local authority as high hedgerows and the occupier/owner of the dwelling must reduce their height to 2 metres.
6. Listed Buildings - Planning legislation requires listed building consent for certain development or works to a listed building, ie one listed as architecturally or historically significant.
7. Tree Preservation - Planning legislation enables the local planning authority (LPA)to protect certain trees by a tree preservation order. Any  works to a preserved tree must be formally authorised by the consent of the LPA.
8. Village and Town Greens: A registered village or town green is protected from development proposals. 
9. Village or Town Greens (in Prospect) - Land may become registerable as a village or town green, particularly where it has been used as of right by local inhabitants for 20 or more years for lawful sports or pastimes. A developer may find that such actions as: a) fencing off the land, b) putting up "keep out" signs, or c) applying for planning permission will not prevent registration.

[Please note: Today is the last day of a government consultation on proposals for changes to the law on prospective village and town greens. If the changes were to be introduced it will virtually end the procedures indicated above!]

Development Checklist No 2- Licences, Consents, etc for Trade Premises

This checklist is put in at the beginning and will be updated as new information becomes available. It covers the statutory consent(s), obligations, etc (by type source, etc) needed by the business proprietor for a particular trade. In some instances the proprietor will have or will be having premises which may require several statutory consents,etc to trade, eg a supermarket. [Please note: This post does not consider planning requirements.]

The client will either obtain the requisite consent, licence, etc  or should be advised on need for the consent etc being obtained. So of course, the development's project/estate manager will / may not be concerned to obtain the consent but the development may be held up or stopped if the relevant consents, etc are not going to be available or be forthcoming in due course.

Check 1: Identify the statutory consents, etc likely to be required and check that:

1. they have been obtained;
2. the proprietor's informal enquires indicate that they will be forthcoming;
3. there is no known impediment to them being obtained.

In most instances this will be for the client as a matter of commercial judgement but if there is any doubt, check you may wish to check that you should proceed to the next stage of the development.

The following list is in alphabetical order.

Betting Shop, Track or Trading Room  - two kinds of licence are required, namely:

• Operating Licence  a person intending to eventually operate such premises (either existing or to be developed) must have an operating licence from the Gambling Commission.
• Premises Licence to Operate (or Provisional Statement)

      Once the licence to operate has been obtained the person must obtain either a premises licence or a    provisional statement.

1. a person intending to operate from existing premises must have a premises licence to operate which is obtainable from the local licensing authority, or
2. where development or major works are required a person must obtain a provisional statement for the premises which is obtainable from the local licensing authority.

For the property professional the important "go-ahead" documents are  the licence to operate and the provisional statement. It should be noted however that there are notifications etc which must be made within seven (7) days of  applying for a premises licence or provisional statement, namely:

• child protection service;
• environmental health service;
• fire and rescue service;
• Gambling Commission;
• Her Majesty's Revenue and Customs;
• police.

(See: http://www.gamblingcommission.gov.uk/gambling_sectors/betting/getting_a_licence_what_you_ne/applying_for_a_licence_-_betti/apply_for_a_premises_licence.aspx

Bingo Hall - A person wanting to operate a bingo hall requires (in order of precedence);

1. firstly, an operating licence from the Gambling Commission;
2. secondly, a premises licence (or provisional ststement) from the local licensing authority.

The approach is similar to that outlined above for Betting Shops.
(See: http://www.gamblingcommission.gov.uk/gambling_sectors/bingo/getting_a_licence_what_you_nee/applying_for_a_licence_-_bingo/apply_for_a_premises_licence.aspx )
Casino - A casino premises licence (CPL) is required according to the casino's proposed size and location. A CPL is obtained from one of 16 named local licensing authority but each named area is only allowed one casino. Half of the areas are allowed large casinos: the rest are allowed small casinos.
(See various pages on the Gambling Commission website including:   http://www.gamblingcommission.gov.uk/gambling_sectors/casinos.aspx )

Nuclear Site - A site for a nuclear power station requires a licence from the Health & Safety Executive to enable its lawful development.
(See :    http://www.hse.gov.uk/newreactors/ngn02.pdf )

Off-licence - Local authorities issue licences for off-licences.

Petrol Filling Station - Petroleum Consolidation Act 1928 (as amended) requires that a petroleum licence be obtained the local licensing authority (Fire and Rescue Service. There is extensive legislation affecting such premises when in operation - covering such matters as:

• Control of Substances Hazardous to Health Regulations 1999;
• Health and Safety;
• Risk assessment, eg control of explosion; 
• Staff training; 

Public Houses - Local authorities issue licences for public houses.

Horse Riding Establishments - Riding Establishments Act 1964 requires that a person must have a licence to keep a riding establishment. Such licences are issued by the local authority. (see section 6 for interpretation.)

Track Room - see Betting Shop

Trading Room - see Betting Shop

 Zoo - Zoo Licensing Act 1981 (as amended) section 1 makes it unlawful to operate a zoo without a licence from the local authority. An application is made under section 2.

The list is not yet extensive  and details of the statute, the subject matter, issuing authority etc is being to be added from time to time!