These are generally bricks and mortar investments into commercial buildings that have been pre-let, which reduces risk. After 30 years, there is now less than 6 months left for investors to take advantage of Enterprise Zone (EZ) tax legislation. From 6th April 2011, EZs will no longer be available.
What’s on Offer?
Of the EZ syndicates available, Chancery (UK) LLP are offering investors the choice of investing in a hi-tech data centre in Dunalastair, North Lanarkshire and/or a high quality traditional office in Cobalt Park, Newcastle-upon-Tyne. These EZ investments enable investors to shelter their higher and additional rate taxable income. There is a non-status, limited recourse loan to facilitate the investment, and an investor cash deposit of 37.5%. The above is for information only and no recommendations are made. Always take professional advice before acting.
Typical Tax Reliefs
On a gross investment of £100,000 the estimated tax relief for a 40% taxpayer is £39,640 (39.6%) and for a 50% taxpayer, £49,550 (49.6%).
Limited Investments Available
EZ investments are now very limited and usually syndicated. The amount invested (by individual or company) reduces taxable income and is usually around 90% to 98% of the investment, as land is not deductible, but buildings are through allowances.
Track Record – Risk
Enterprise Zone legislation was created in 1980, so there is a 30 year plus track record for this non-tax contentious investment vehicle. An EZ investment is a tax mitigation vehicle and not a deferral. Some EZ investments have gone wrong in the past and this should be viewed as high risk, especially when geared.
Reduce Your Outlay Through Bank Loans
Most EZ investments use limited recourse loans as follows:
A non-status, limited recourse loan would be agreed in principle. This means that for every £100,000 invested, the investor will just have to find £37,500 (37.5%). The remaining £62,500 (62.5%) is made up by the loan.
Tax Relief
The investor can claim up to 100% income tax relief on the proportion of their investment used for ’qualifying expenditure’.
If the ’qualifying expenditure’ on an investment was say 98.95%, which means that on an investment of £100,000, a higher rate taxpayer will receive tax relief of £39,400 – 39.4%. This varies according to the qualifying expenditure.
The self-employed can offset against their January 31st Payment on Account; employed persons can reclaim their tax after 5th April. You can only offset the current year’s income and not a capital gain.
Example
Taxable Income £150,000
Less: EZ investment of £100,000 of which 98% qualifies: £98,000
Taxable Income reduces to £52,000
Unless the Government declares further EZs in the future, this type of tax reduction investment ends in the 2010/11 tax year.
Practical Tip
Property investors can significantly reduce their taxable income through EZ investments, and finance the deal.
By Tony Granger
