Freeports: a good opportunity for the real estate and construction industry?

In the Chancellor’s March 2021 Budget speech, he announced plans to set up Freeports in eight locations around England, with ongoing discussions around more Freeports in Scotland, Wales and Northern Ireland. He confirmed that East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames had been successful in the Freeports bidding process for England. Subject to agreeing their governance arrangements and successfully completing their business cases, these Freeports will be operational from late 2021.

Freeports are designated zones where the normal tax and tariff rules of the country do not apply. Goods in Freeports can be imported, manufactured and re-exported without being subject to customs checks, paperwork or import tariffs.

Back in November 2020, the government outlined its post-Brexit plans for Freeports as part of its efforts to “turbo-charge post-Brexit trade”. It also set out further details around how it would create new innovative Freeports across the UK to “create jobs, drive investment and regenerate communities”.

Responding to the consultation on the proposals, the government confirmed that sea, air and rail ports in England would be invited to bid for Freeport status before the end of the year.

Historical Freeports

Freeports are by no means a new concept, in fact the UK had seven Freeports between 1984 and 2012. Locations included Liverpool, Southampton and the Port of Tilbury. The economic benefits to Freeports were outlined in a paper written by the then unknown Rishi Sunak in 2016. So why bring them back now? While the government originally planned this as part of their post-Brexit plans, it seems the Chancellor is now using this as a way to help ‘level up’ the country and regenerate deprived areas. During his Budget speech, Mr Sunak said these areas would have “different rules to make it easier and cheaper to do business.”

“The Freeports will contain areas where businesses will benefit from more generous tax reliefs, customs benefits and wider government support, bringing investment, trade and jobs to regenerate regions across the country that need it most”.

The benefits of Freeports

The government will legislate for powers to create ‘tax sites’ in Freeports in Great Britain. Businesses in these tax sites will be able to benefit from the following tax reliefs:

• An enhanced 10% rate of structures and buildings allowance for constructing or renovating non-residential structures and buildings within Freeport tax sites in Great Britain, once designated.
• An enhanced capital allowance of 100% for companies investing in plant and machinery for use in Freeport tax sites in Great Britain, once designated.
• Full relief from stamp duty land tax on the purchase of land or property within Freeport tax sites in England, once designated. Land or property must be purchased and used for a qualifying commercial purpose.
• Full business rates relief in Freeport tax sites in England, once designated. Relief will be available to all new businesses and certain existing businesses where they expand, until 30 September 2026.
• Employer national insurance contributions relief (subject to parliamentary process and approval) available for eligible employees in all Freeport tax sites from April 2022 or when a tax site is designated if after this date.

Freeports and the real estate and construction industry

Guy Richardson, Real Estate and Construction Partner, says: “While some Freeports (or versions thereof) have been hugely successful for some countries, previous versions tried in the UK have not had a big impact on the economy. Indeed, in many cases they have simply moved jobs and business from one UK location to another, without meaningfully increasing trade.

“Whether history will repeat itself with the Chancellor’s Freeports, only time will tell. However, undoubtedly this presents opportunities for the real estate and construction sector. Even if it is just jobs and business moved from one location to another, that still means building work in and around the Freeport, and potential land value increases.

In a broad economic sense, Freeports represent a good opportunity for the real estate and construction businesses that get in on the action.”

On the other hand, Geraint Lewis, VAT Director, says: “Freeports offer a range of tax incentives to business and, post-Brexit, could be an important part of the UK’s plan to offer a trade-friendly environment to businesses.

“For businesses currently grappling with the complexities of shipping goods into and out of the EU, the various opportunities to minimise customs formalities may be a particular attraction. However, the history of Freeports in the UK is not entirely positive. Also, in other locations, Freeports have not always been hubs for sustainable long-term economic development.”

For more information on Freeports and Budget 2021, or if you would like to discuss any other topics affecting real estate and construction, please get in touch with our team, including our VAT specialists.