Canary Wharf tax breaks approach pounds 1bn
Thursday 16 July 1992
The total is almost twice as much as previously assumed, and compares with the pounds 500m that potential purchasers have so far been reported to be prepared to pay for the project.
Because it ran into difficulties before the development was complete, Olympia & York, the Canadian group responsible for Canary Wharf, never made profits in the UK against which it was able to make use of the allowances.
But the tax reliefs, which could be taken over a period of up to 10 years, would be highly attractive to a group like Hanson, which has difficulty in finding tax shelters for its pounds 1.3bn a year of profits.
Lord Hanson is known to have been working on an offer for Canary Wharf with the assistance of John Ritblat, chairman of British Land, the property group.
Potentially, a purchaser of Canary Wharf could benefit from three sorts of tax break: enterprise zone allowances worth around pounds 400m, corporation tax allowances of about pounds 400m, and about pounds 200m of VAT exemptions.
VAT exemption would apply in full only if the remaining phases of the development were completed and sold, however.
To take advantage of the corporation tax breaks, a buyer would have to acquire Canary Wharf's holding company, O&Y Canary Wharf Holdings. But enterprise zone allowances could be transferred to the buyer of an individual building - though the tax break would not apply if the building were to be acquired by a government department.
The Department of the Environment, which has narrowed down the search for its new London home to three Docklands developments, including Canary Wharf, is considering an offer from Ernst & Young, the administrators, that it should buy rather than lease a building.
If the DoE were to acquire the building, the Treasury would make a 'saving' on tax breaks worth up to an estimated pounds 100m. Attempts to persuade the Treasury that this should be taken into account in deciding on funding for the Jubilee Line extension have so far fallen on deaf ears.
The extension is conditional on more than pounds 100m of private sector finance previously pledged by Olympia & York. It is regarded as the key to the success of both Canary Wharf and Docklands.
A delegation of businessmen based in Docklands will today petition John Major, the Prime Minister, in an attempt to ensure the line gets the go-ahead. However, the Government has so far insisted that it will not substitute public cash for the O&Y contribution.
The administrators are keen to attract the DoE to Canary Wharf because they believe it would help to boost confidence in the development. But the move is bitterly opposed by the 2,000 or more civil servants who would be affected, and who yesterday mounted a 24- hour strike against the prospect.
Michael Pickard, chairman of the London Docklands Development Corporation, which has overall responsibility for the area's regeneration, said he did not see the action as directed against Docklands but against any move out of central London. 'Eighty per cent of them voted against going to Croydon,' he said.
The dire state of the Docklands property market was underlined in the LDDC's annual report and accounts, published yesterday, which showed a deficit of pounds 55m for the year ended March 1992, after a pounds 52m provision that has halved the value of its 518-acre landbank.
This year's provision follows a pounds 6m provision last year, a pounds 19m reduction in 1990, and a pounds 21m provision in 1988.
Land in Docklands is now valued by the LDDC at around pounds 100,000 an acre, compared with an average price received by the corporation during the 11 years it has been operating, of pounds 448,000 an acre.
Since 1981 the corporation has acquired 2,151 acres of Docklands, of which 416 have been water, 535 have been used for infrastrucure and 1,200 were available for development. Of that, just over half - 682 acres - has been disposed of, raising pounds 306m, leaving about 518 acres of undeveloped land still to be sold. The private sector currently holds about 400 acres of undeveloped land in Docklands.
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