Enterprise Zones were introduced by the last Conservative government through enabling legislation passed in 1980 during the 1980s recession. Defined sites were designated by statutory instruments over the next fifteen years, the last being designated in 1996. The areas designated benefited from incentives which included:
- relaxed planning regime
- relief from business rates for ten years
- 100% capital allowances in the first year
The capital allowances benefited investors who bought the sites collectively in syndicates, as the structure of the syndicates allowed each individual to claim allowances on his share of the qualifying expenditure. Once designated, enterprise zones had a life span of ten years, but if a construction contract was entered into prior to the expiry of the ten year period, the tax benefits could be claimed if the site was developed at any time during the following ten years. No wonder these construction contracts acquired the name "Golden Contracts".
The first zones to be designated were in areas where old industries had closed down such as Hartlepool, Corby and Clydebank, which were designated in 1981. The former London dockyards were designated the Isle of Dogs Enterprise Zone in 1982 and subsequently another 51 zones were declared in areas as geographically spread as Swansea (1981 and 1985) and North Kent including Chatham Dockyard (1983 and 1986). The final zones included Dearne Valley in South Yorkshire (1995) and eleven zones in North Tyneside designated in 1996.
Under the schemes, private sector investors would purchase a site and were obliged to clean it up prior to speculative development, or pre letting to a tenant. From a public policy point of view, enterprise zones quickly brought economic activity and jobs to former docks, derelict industrial areas and collieries and furthermore this was by means of a private sector market driven scheme, rather than by centrally planned movement of industry or government departments to deprived areas. The investors' tax breaks meant development documents had to be signed up by 5 April in any one year ensuring a focus to get deals done and construction underway.
From the point of view of the investors who purchased the sites, the main benefit was the availability of capital allowances which enabled the investors to obtain income tax relief at their highest marginal rate for qualifying capital expenditure on the construction of buildings. The tax breaks also enabled money to be available to provide inducements to attract tenants into the completed buildings.
Acting for investors, banks and tenants in the enterprise zone sector for the past fourteen years, we have advised on the purchase and development of over forty schemes. Our experience has shown that documenting the enterprise zone investment schemes correctly is critical to ensure that the monies flow correctly and the tax claims will be accepted by the Revenue. Strong relationships with the specialist tax accountants who claim the allowances are vital, as is checking the development plans produced by the architects with an experienced property lawyer. This ensures that the proposed developments actually fall within the enterprise zones and qualify for the benefits. On two occasions we found parts of the proposed buildings were outside the zones and they had to be redesigned to ensure conformance.
It is now being mooted that enterprise zones will be reintroduced in the budget on 23 March. This private sector approach is probably one which will produce regeneration and new jobs in the selected areas quickly, subject to bank funding being available and tenants being available for the developed buildings.
Whether you are a promoter of EZ investments, an investor, bank or tenant we would be delighted to offer advice on enterprise zones in general, or specific schemes, to ensure that you maximise the benefits for you.
For further information, please contact:
0141 303 2396
020 7634 8736
020 7002 8538
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This briefing is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.