How is qualifying expenditure apportioned when a building straddles a freeport tax site boundary?

Under section 270BNB, where a building physically straddles a freeport tax site boundary, a just and reasonable apportionment of total qualifying expenditure must be carried out. Only the portion fairly attributable to the part of the building located inside the freeport tax site is treated as freeport qualifying expenditure eligible for the enhanced 10% annual allowance.

What date is used to determine whether a building is partly within a freeport tax site?

The test is applied on the later of two dates: the date the building is first brought into non-residential use and the date the qualifying expenditure is actually incurred. If on that later date the building is only partly within the freeport tax site, apportionment of expenditure is required under section 270BNB.

What happens if a building is partly brought into qualifying use after 30 September 2026?

A just and reasonable apportionment is required. Only the expenditure attributable to the part of the building first brought into qualifying use on or before 30 September 2026 qualifies as freeport qualifying expenditure. Expenditure attributable to parts brought into use after that deadline does not qualify for the enhanced freeport allowance but may qualify for the standard 3% allowance.

Can expenditure that fails the freeport apportionment test still qualify for any capital allowance?

Yes. Expenditure that does not qualify as freeport qualifying expenditure because it is attributable to parts outside the freeport tax site or parts brought into use after the 30 September 2026 deadline may still qualify for the standard structures and buildings allowance at the lower annual rate of 3% under the Capital Allowances Act 2001.

Capital Allowances Act 2001 section 270BNB

Apportionment

Section 270BNB deals with how qualifying expenditure on buildings or structures is apportioned where only part of the property falls within a freeport tax site, or where only part is brought into qualifying use by the relevant deadline.

Where a building straddles the boundary of a freeport tax site, only the expenditure fairly attributable to the part within the site qualifies as freeport qualifying expenditure.
The test for whether a building is partly inside a freeport tax site is applied on the later of the date it is first brought into non-residential use and the date the qualifying expenditure is incurred.
Where a building is partly brought into qualifying use on or before 30 September 2026 and partly after that date, only the expenditure attributable to the part brought into use by that deadline qualifies.
In both cases, the split of expenditure must be made on a just and reasonable apportionment basis.

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