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Freeports - the tax breaks

Newsletter issue - October 2021

Eight new Freeports were announced earlier this year, with each offering operators within the sites a number of tax incentives. The sites are:

  • East Midlands Airport
  • Felixstowe & Harwich
  • Humber Region
  • Liverpool City Region
  • Plymouth & South Devon
  • Solent
  • Teesside
  • Thames

A Freeport requires a primary customs site located near an air, sea or rail port. A number of special customs rules apply within the zones, including duty deferral, inversion, and exemption, as well as simplified declaration requirements. In order to take advantage of the tax incentive, a "tax site" must be designated within the Freeport. The reliefs cannot apply until the designation date.

Enhanced capital allowances

There are enhanced allowances for plant and machinery and structures and buildings for use within the freeport tax sites. A First-Year Allowance of 100%, with no upper limit, is available for expenditure on plant and machinery primarily for use within a Freeport tax site as long as it is incurred before 30 September 2026 (though this date may be extended).

There is also an enhanced straight-line 10% Structures and Buildings Allowance for expenditure incurred on constructing, renovating or acquiring new buildings/structures within the tax site.

Stamp Duty Land Tax (SDLT)

If land within a designated tax site is acquired after the designation date and before 30 September 2026, SDLT relief may be available depending on the extent to which the land acquired is "qualifying". Land will be qualifying if it is purchased with the intention to use it in a qualifying manner. In turn, this means that the land must be used, developed or exploited in the course of a commercial trade or profession, either by the purchaser or a connected person. The amount of relief depends on how much of the consideration is attributable to the qualifying Freeport land as follows:

  • 90% or more - full relief
  • less than 90% but at least 10% - full relief on the qualifying proportion
  • less than 10% - no relief.

A number of examples are available on GOV.UK.

Relief does not apply if the land will be:

  • used as residential property
  • developed or redeveloped to become residential property
  • held as stock of the business to be resold without having been developed or redeveloped.

Once claimed, the qualifying land is subject to a control period of three years (or until the land is sold), whereby relief may be clawed back if the land is not used in a qualifying manner.

Business rates

Once the tax sites are designated, eligible businesses located within them will be able to claim full relief from business rates for five years (from the point relief is first granted). This will be administered by Local Authorities. More information is available here.

Employment taxes

From April 2022, employers of new qualifying employees will enjoy an enhanced Freeport Upper Secondary Threshold, meaning they will pay no Secondary Class 1 NI on the employees' earnings up to the Upper Secondary Threshold for up to three years. The employer must have a physical premises within the tax site, and the employee must spend at least 60% of their employed time working within a single freeport tax site. At the time the policy was published, it was stated that the Freeport Upper Secondary Threshold will be £25,000 per annum.