Enterprise Zones

What are enterprise zones?

If you pay a considerable amount of Income Tax at the higher rate you may find Enterprise Zone investment very attractive. Effectively the Revenue provides most of your deposit in what can be a very lucrative investment. Enterprise Zones were introduced by The Finance Act 1980. The aim of the legislation was to stimulate new building and employment in certain depressed or run-down areas. Businesses are attracted to them because of savings in tax and business rates. Planning rules are also simpler, while compliance with other regulations is often processed more quickly. Hence, buildings developed in these zones are very attractive to major companies and Government agencies; very important when considering the long-term value to investors. Typically a syndicate will be formed to purchase and own a specific property. Members of the syndicate are all individuals paying substantial amounts of higher rate tax in the current tax-year. The investment will result in a rebate from the Revenue, ideally of all the higher rate tax paid in that year.

Here’s how it works.

The investor will make a deposit equal to a little more than the higher rate tax they expect to pay that year; this can be lent, if required, until the rebate is received next tax-year. The investor will then receive 90-95% of their deposit cost back from the Revenue and now shares in the ownership of a substantial quality commercial building, for very little personal cost.

Ideally the syndicate will sell the building after 7 years, - the earliest opportunity for sale without a tax-claw back- but it may take longer than this. There is even more good news because even if the property has not appreciated in value a significant tax-free profit can result, because the mortgage has been partially repaid.

This of course depends on finding a good quality tenant such as government or a large company. At SFIA we only support arrangements where the developer is able to provide a cash guarantee of the rent untill a suitable tenant is found.

Please note that the rental income, whether from the developer or a tenant, must be declared and potentially income tax is payable on a small part of this deemed income. SFIA’s ongoing tax-planning should help to mitigate most or all of this liability.

In summary, our clients receive a very tax-efficient, high quality investment using tax that they thought they’d lost. As a result many are becoming serial investors, building up a commercial property portfolio to supplement their retirement planning or to fund future major expenses such as school and university fees