Freeports are a key pillar of the Government’s post-Brexit trade strategy. Designed to facilitate trade by easing red-tape and customs duties, these designated zones are also a tool to regenerate unloved areas of the UK. For property investors, the eight new freeports announced in the March 2021 budget represent a potential opportunity, both for property within the freeport and the associated housing and infrastructure.
What is a freeport?
Businesses operating within freeport areas receive certain tax incentives. First, and most importantly, there is the exemption from customs duties (tariffs) for goods imported into a freeport and less burdensome customs procedures. Freeports may also benefit from a range of other tax incentives, such as enhanced capital allowances or relief from stamp duty.
Freeports aren’t a new idea – the UK had seven freeports between 1984 and 2012 in areas such as Liverpool and Southampton. They are also employed to facilitate trade around the world – there are estimated to be 3,500 freeports globally, employing 66m people (1.)
The UK has already started the process of building new freeports. Local Enterprise Partnerships were asked to submit bids for their local region. The Government has now finalised eight new freeports from 18 bids in total, announced in the March 2021 budget: East Midlands Airport; Felixstowe and Harwich; Humber region; Liverpool City Region; Plymouth; Solent; Thames and Teesside. Building is due to start in 2022 (1.).
As part of the tender process, the Government looked at whether the freeport could bring economic opportunities to poorer regions as part of its ‘levelling up’ agenda. The Government also sought to ensure that freeports were evenly spread across England. The new freeports will have access to a regeneration and infrastructure fund worth up to £175 million (1.).
Why look at freeports?
At a time when Brexit has created challenges for companies exporting abroad, the new freeports are expected to see significant demand. For developers, it is expected that the Government will put specific incentives in place for property development, such as reduced stamp duty land tax.
Freeports are designed to help the flow of trade and, by extension, the UK economy. A report by the consultancy Mace indicated freeports could boost trade by £12 billion a year, UK GDP by £9 billion and create 150,000 new jobs. Some of these jobs will be in ‘green’ sectors (2.).
These zones will also need new infrastructure, such as housing and service industries. There are likely to be plenty of opportunities to get involved with when creating this new infrastructure, which may also come with incentives in place. Equally as jobs move, workers will need new, affordable homes, which could push up land prices. Sustainability is likely to be an important feature of these new developments, with eco-friendly buildings and cycle lanes. This will bring significant demand for developers and construction groups.
The rules around freeports have not yet been finalised. There is a question over whether their vision for freeports is compatible with European and World Trade Organization rules on state subsidies to business. The rules exist to discipline the use of government subsidies. It could be argued that those carrying out economic activity in the freeport have an advantage over other competitors. The Government won’t be prevented from establishing freeports, but the subsidies may not ultimately be as generous as hoped.
There is a question over whether freeports can create new jobs and growth, or whether they simply draw jobs from elsewhere. Freeports may depress the prices in the area immediately around them as demand for property on the ‘wrong’ side of a freeport ebbs and is replaced by demand for property within a freeport. Developers operating in the areas covered by freeports need to weigh the pros and cons of shifting their priorities. It seems clear, however, that for the property development and construction industry, there will be plenty of building, which will bring heightened demand.
In my view this could be an important part of the UK’s road to recovery, as post-Brexit freeports should play a key role in the UK’s plan to offer a trade-friendly environment to businesses. If implemented properly, freeports could be a big attraction for businesses currently struggling with new the complexities of shipping goods into and out of the EU, especially when combined with a shortage of HGV drivers and the uncertainties surrounding supply of goods.
The final development plans will be announced in the Autumn. In the meantime, we have been talking to some of those involved in developing and running the freeports and advising clients with property close to freeports. It is too early to say whether it will be worth relocating to these areas; investors need greater detail on the incentives on offer.
As property investors re-examine their portfolios in the wake of the seismic shock from Covid, freeports present a new opportunity. Our team is on hand to help you navigate the financial considerations of investing in freeports as more detail emerges. Please get in touch.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice before making decisions. HMRC Tax Year 2022/23.
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This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.