As part of the September 2022 ‘Mini-budget’ UK Chancellor Kwasi Kwarteng announced that Investment Zones will be set up across the country offering a combination of tax breaks and regulatory and planning liberalisations, with the aim of unlocking rapid development and business investment.
The UK Government’s Growth Plan, published on 23 September, represented a significant change in approach across a range of topics, and has received significant attention, but one announcement will be of particular interest to organisations considering investments from Cumbria to Cornwall.
Confirming one of the pledges made by the Prime Minister during the leadership campaign, the Chancellor announced that early stage discussions are underway with 38 Authorities across the country on establishing Investment Zones in their areas.
Limited details are currently available, but further information is expected to be released in coming months.
Benefits Available
Investment Zones will offer a range of time-limited tax incentives over the next 10 years to tax sites within their boundaries. The incentives on offer have not been confirmed, but the announcement set out a range of benefits being considered.
The tax benefits are similar to those seen in the freeports regime announced by Chancellor Kwarteng’s predecessor Rishi Sunak last year, but appear to be intended to be more generous and longer lasting. The only significant area where Freeport status has advantages over Investment Zones is on customs, where there are no direct benefits proposed for Investment Zones.
| Policy Area | Potential benefits | Where does this go further than Freeports? |
|---|---|---|
| Business Rates | 100% relief on newly occupied business premises, and certain existing businesses where they expand. |
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| Capital Allowances | 100% first year allowances on qualifying expenditure on plant and machinery assets. |
|
| Structures and buildings allowances | 20% accelerated relief on the cost of qualifying non-residential investment (compared to standard 3% rate). |
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| Employer NI | Zero-rate Employer NICs on salaries of any new employee working in the tax site for at least 60% of their time, on earnings up to £50,270 per year. |
|
| Stamp Duty Land Tax (SDLT) | A full SDLT relief for land and buildings bought for use or development for commercial purposes, and for purchases of land or buildings for residential developers. |
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| Customs benefits | N/A |
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| Geographical coverage | No limits currently proposed. |
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Existing Freeports will be allowed to apply for Investment Zone status and with more generous and long-lasting tax breaks, it is likely that at least some will do so.
One aspect of the Freeport design that has been kept by Investment Zones is the limitation of the reliefs to designated Tax Sites within the area. In practice, Tax Sites have been small designated areas within Freeports and whether Investment Zones follow this approach will be a key factor in determining the level of interest that sites have to clients.
Alongside the tax benefits, the Government promises a new, faster and more streamlined consent to grant planning permission for high quality development for jobs and homes. The Government’s expectation is that Investment Zones will boost investment by bringing forward a mix of both commercial and residential development.
What’s next?
The Government will be shortly publishing details of how Local Authorities in England can register their interest in having Investment Zones established in their areas. It is expected that this will confirm further details of the policy and measures available although these are likely to be finalised through discussions.
Expressions of Interest will need to set out how the status can drive additional growth and investment, alongside demonstrating the local capacity and capability to drive these plans. Legislation confirming the tax benefits will be taken through in due course.
While further detail on the timetable will follow, the Government is keen to establish Investment Zones as soon as possible.
The Government also intends to work in partnership with the governments of Scotland, Wales and Northern Ireland on the implementation of Investment Zones in the Devolved Administrations.
What should you consider now?
The introduction of Investment Zones has the potential to create an incentive for both domestic and international firms to make use of the proposed tax incentives, encouraging a wider range of commercial activities into these specified areas.
While there is currently uncertainty about how Investment Zones will be taken forward, policy is likely to rapidly evolve and the potential for incentives will need to be taken into account in investment decisions.
We can help you understand what is needed to access incentives and help you manage the complexity involved, by bringing together tax, customs and consulting experts, to help you decide whether Investment Zones would be right for you.
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