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What will more free ports do for the UK economy?

Martin Smith / 6 Dec, 19

Amidst this year’s ongoing political debates, a proposal was released to increase the number of freeports in the UK from 0 to 10. Freeport status changes the tax boundary of goods being imported to the UK, offering various benefits to businesses situated in them.

Ports are a major contributor to the UK economy, with 96% of UK trade passing through them. Increasing the number of freeports in the UK is likely to boost the economy and create up to 86,000 jobs.

Where would the new free ports be?

The UK formerly had 5 free ports until as recently as 2012 when legislation creating them expired, however the latest proposals suggest that the number would double that previously provided, in the event of Brexit.

It’s likely that free port status would be granted in areas of higher unemployment and deprivation, providing an opportunity for ports in regions like the North East of England, South Wales, Scotland and the West Country. With just over 50% of the UK’s 30 largest ports located in deprived areas, competition for the status is likely to be high.

What are the benefits of free port status?

Without free port status, goods imported into the UK are taxed at entry into the port. However, if granted free-port status, the imported goods would instead be charged tax when passing into the wider UK (i.e. tax-free until exiting the port).  Whilst this is a subtle change, the ramifications could be significant, including:

  • Duty exemption for any activity performed within the port.
  • Duty deferral, i.e. delay of importing the goods (despite them being on UK soil) to assist with cash flow;
  • Tariff inversion (i.e. manufacturing goods within the port area to alter their tax status). For example, radios attract a higher level of tax than cars, hence by importing radios and installing them within cars in the free port area, their tax status is lowered once installed.

How would free port status impact on surrounding land?

It’s likely that the created free ports boundaries would also encompass adjacent business zones, leading to ‘tax free’ enclaves around the port itself.

The removal of tax implications within these zones would result in strong demand for property and land, creating an isolated rental market with increased rents compared to the ‘normal’ rental comparables in the area.

This could provide an opportunity for property owners and land owners to take advantage of a free port zone.

What are we waiting for?

A free ports advisory panel has already been established by the government, including a number of key players in the ports industry, as well as economists and tax experts.  With political uncertainty putting so many things on hold, it’s likely we won’t know the future of the free port proposal until next year.

Topics: Blog

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