A key feature of the Budget proposals withdrawing IBAs (including HBAs) is the absence of any "grandfathering" provisions that would permit continued claim for allowances in relation to building expenditure that has already been incurred or that is contracted to be incurred in the future. The absence of grandfathering provisions means that the legislation will have retrospective effect so that a taxpayer who has incurred or is committed to incur expenditure on the construction or acquisition of a hotel is no longer able to benefit from the legitimate expectation that allowances would be available over a specified and long term period. Financial models and even financial covenants will have been adversely affected. Business plans that have been prepared on the basis of the expectation are now largely redundant.

This could be challenged under the property right enshrined in Article 1 of the First Protocol of the European Convention of Human Rights which is incorporated into English law through the Human Rights Act 1998. This right was previously invoked in the Woolwich case (albeit unsuccessfully in that case) to challenge the retrospective imposition of tax on building societies as part of a loophole-closing exercise.

Although the Government may argue it benefits the public at large (by allowing cuts in the base rate and the rate of mainstream corporation tax), the failure to grandfather existing or committed IBA/HBA claims is arguably an unnecessary, disproportionate, random and even illogical attack on the sectors most affected, namely hotels, industry and agriculture, especially as there is no windfall profit or tax avoidance scheme in these sectors or more widely which merits such an attack. As such, there is good argument for the illegality of such measures.

In relation to hotels, the BHA and BAHA are both vigorously challenging the proposals. Their efforts should be strongly supported using all available argument underlying the illegality.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 25/05/2007.