Construction tax updates: Green tax reliefs

Energy Saving Materials for residential property

To help households improve energy efficiency and keep energy costs down – as well as supporting the UK’s long-term Net Zero ambitions – VAT relief is available for the installation of Energy Saving Materials (ESMs).

From 1 April 2022, the zero-rate of VAT applies to the installation of ESM in residential properties. A typical family having roof top solar panels installed will save more than £1,000 in total on installation, and then £300 annually on their energy bills.

Wind and water turbines have been reinstated as ESM from 1 April 2022 when installed in residential properties.

This zero rating for ESM installed in residential property is available until 31 March 2027 after which it will be charged at the reduced rate of VAT at 5%.

Commercial property improvements

Tax relief can be claimed for improvements to commercial properties using the capital allowances system. 100% tax relief is available for the installation of most plant and machinery or fixtures up to the AIA limit (currently £1million).

For companies where the AIA limit is exceeded, 100% relief known as ‘full expensing’ may still be available for new and unused plant and machinery.

For expenditure on building works, companies may also claim tax relief at a rate of 3% per year known as ‘structures & buildings allowance’. This can apply to construction costs and improvement costs on the building itself, such as floors, walls, ceilings, etc. that are not treated as plant and machinery.

Green reliefs for Business Rates

To support the decarbonization of commercial buildings, targeted business rate exemptions were introduced from 1 April 2022 until 31 March 2035 for eligible plant and machinery used in onsite renewable energy generation and storage. 100% relief is also available for eligible low-carbon
heat networks with their own rates bill.

Read more on these topics in the latest issue of our newsletter South East Property.

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Contact our tax team on 01903 234094 for further help or support on any of the above.