A boon for commercial property investors?

Spring Budget 2023 uncovered: Inside the Red Book

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As our Budget guide summarised, the Spring 2023 Budget was short on big announcements. But for business (specifically companies, not LLPs or other unincorporated businesses) the key measure was a move to ‘full expensing’ for capital expenditure incurred from 1 April. This is initially for a three-year period, with an intention to make the rule change permanent.

The Chancellor explained this change in basis as follows. That the rate of tax (and notably the increase to 25% from April 2023) is not the main driver for businesses to choose to invest in the UK or otherwise. Rather, it is the rate and pace of relief in respect of investment.

What is full expensing?

The effect of full expensing is to treat qualifying capital expenditure as a day 1 cost in calculating profits in full. This removes the potentially complex adjustments in respect of disallowing accounting depreciation and replacing this with capital allowances.

Although, in principle, this looks like an acceleration of tax relief, the nature of capital allowances means that a permanent tax benefit is also derived. Because capital allowances are calculated on a reducing balance basis, it’s effectively impossible under the capital allowance regime to get 100% of spend on assets that fall into a ‘pool’.

Full expensing will only apply to assets that would otherwise fall into the ‘main pool’ for capital allowances. This is generally all plant and machinery, except for cars, long life assets, and – most importantly for property investors – plant and machinery installed in buildings (known as ‘integral features’ in tax legislation). These assets fall into the ‘special rate’ pool.

Hidden in the detail

Not addressed in the Budget speech, but only in the documents released afterwards, was confirmation that although full expensing would be restricted to main pool assets, expenditure on special rate pool assets would instead qualify for a 50% first year allowance (in the year of expenditure for at least the next three years). This compares with the standard rate of 6% per annum on the reducing balance of the same expenditure, if incurred before April. 

So, for any company making a significant investment in property assets, this gives potentially high levels of additional relief. This is best illustrated with numbers.

Example – A company holding an office block renovates the building between tenants and to meet new energy efficiency standards.  70% of the works qualify as integral features, and the company has no other capital spend.

Capital allowances per year

Current rules

New rules from 1 April

Year 1



Year 2



Year 3



Year 4



Year 5



Total relief



Note that in each case the Year 1 relief is higher than the pure percentage writing down allowance, as it is assumed that the £1m annual investment allowance (which is unchanged in the Budget) is also applied.

Impact for the commercial property sector

Assuming the announcements are followed through into legislation, the uncapped 50% first year allowance applying to special rate assets is a rare positive note for the sector in recent years. Property has been hit first by the Corporate Interest Restriction, then by limitations on the use of brought forward losses. And, in the very near future, it will be affected by the Corporation Tax increase.

All this is happening at a time when the sector itself faces headwinds from falling occupancy rates in retail and energy efficiency requirements that mean refurbishing properties and incurring significant capital expenditure. And not forgetting that the construction market has experienced high rates of cost inflation for many years.

This measure may not have been intended to benefit the sector but, on the face of, it certainly appears that it will.

 If you would like further advice, please contact Chris Riley.