This is an at a glance free view guide to the Structures and Buildings Allowance. Subscribers see Structures and Buildings Allowance 

A new Structures and Buildings Allowance (SBA) has been introduced for qualifying expenditure incurred on or after 29 October 2018. it applies for income tax and corporation tax.

At a glance

The allowance is 2% of cost on a straight-line basis for a 50-year period.

  • It applies to qualifying expenditure incurred on or after 29 October 2018.
  • There are no balancing adjustments on sale.
  • The building or structure must be used in a qualifying activity (see below).
  • The claimant must have an interest in the land where the asset is constructed (freehold or leasehold).
  • The relief is available from when the structure or building is brought into use for the first time for a qualifying activity.
    • Where the qualifying activity has not commenced expenditure qualifies once it is brought into use.
  • Where an accounting period is less than a year the allowance is reduced proportionately.
  • If relief is not claimed, it cannot be carried forward to a later period and is lost.
  • As with other capital allowances a claim for the SBA must be made in the tax return.

What type of expenditure qualifies for the SBA?

  • Capital expenditure on renovations or conversions of existing commercial structures or buildings.
    • Does not include costs allowed as a deduction in calculating business profits.
  • Repairs incidental to the renovation or conversion of existing commercial structures or buildings.
  • Construction costs of new properties:
    • The net direct costs related to physically constructing the asset, after discounts, refunds or other adjustments.
    • Fees for design.
    • Preparing the site for construction.
    • Fitting out works.
  • Expenditure on financing, legal and public enquiries, planning permission, landscaping or for which a grant or contribution has been received do not qualify for relief.
  • Claims are restricted to the lower of:
    • The actual amount of expenditure which must be evidenced.
    • Market value.

What are qualifying activities?

SBA applies to capital expenditure on structures and buildings used for qualifying activities:  

  • A trade, profession or vocation.
  • A UK or overseas property business that is not a Furnished holiday let business. 
  • The managing of the investments of a company with investment business.
  • Contributions by landlords to tenants for the cost of qualifying construction expenditure.
  • Hotels and care homes.

 Structures and buildings include:

  • Offices, retail and wholesale premises
  • Walls, bridges and tunnels
  • Factories and warehouses.

Can I claim the SBA on expenditure on dwellings and land?

No. Expenditure on residential property and other buildings that function as dwellings will not qualify:

  • Dwellings are buildings primarily intended or used for long-term residence such as university or school accommodation, military accommodation and prisons.
  • No relief for expenditure on workplaces that are an integral part of a dwelling, or residential parts of mixed developments.
  • Expenditure on acquiring land or rights over land does not qualify for relief.
    • This includes legal costs, SDLT, and costs for obtaining planning permission.

How does the SBA apply to leasehold property?

  • Where the term of the lease 35 years or less, all the allowances will stay with the lessor. 
  • Where leases exceed 35 years, and the amount paid as a capital sum for a lease is 75% or more of the capital amount plus the value of the retained interest in the property, it is the lessee who holds the necessary interest for the SBA.  

What if my expenditure qualifies for other capital allowances?

How do I deal with qualifying expenditure which has multiple uses?

  • Where a structure or building has multiple uses, an appropriate proportion of expenditure will qualify for relief, to be apportioned on a just and reasonable basis.
  • A building or structure is “put to multiple uses” if it:
    • is used for the purposes of two or more qualifying activities or
    • is partly in use for a qualifying activity but partly for another activity
  • 'Insignificant' use of a building or structure is ignored when determining if there is qualifying use.
  • Shared areas with mixed residential and commercial use will not qualify at all.

Do renovations and later additions to the property qualify?

  • Capital expenditure after the date when the building enters into use qualifies for a separate allowance with its own 50 year allowance period.
    • Expenditure must be tracked per year to ensure the correct allowances are claimed.

What about changes in the use of the structure or building?

  • Where a structure or building originally used for a qualifying activity has a change of use and becomes a dwelling SBAs cease to be available for the period for which it is in use as a dwelling.
    • If qualifying activity resumes, allowances will restart; no relief is given for the period of non-qualifying use

What about periods of disuse, change of use, damage to and demolition of  the property?

  • The allowance can continue to be claimed during periods of disuse.
  • Unrelieved expenditure is deductible for CGT purposes when a property is demolished.

What happens when there is qualifying expenditure by a person not chargeable to tax?

Where construction costs are incurred by anyone not in the charge to UK tax, or where income from the qualifying activity is not within the charge to UK tax:

  • Notional allowances at 2% per year are calculated and deducted from the qualifying expenditure and any person who then acquires the structure or building is entitled to the remaining qualifying expenditure reduced by the notional allowances.  

What about when the building or structure is sold?

  • Where an asset qualifying for relief is sold, the new owner can claim the allowance for the rest of the 50-year period if it is used for a qualifying activity.
  • There are no balancing adjustments on disposal.
    • When calculating the capital gain on disposal the allowable cost of the asset will be reduced by the total amount of relief that the seller has claimed.
  • Where the SBAs are transferred to a new owner, the amount of the original expenditure may need to be verified if SBA is not already being claimed (via an Allowance statement).

What is an Allowance statement?

An allowance statement must be provided by the first owner and to all future owners to enable them to claim the allowances or the qualifying expenditure will be treated as nil.

An allowance statement is a written statement of:

  • information to identify the structure, such as address and description.
  • the date of the earliest written contract for the construction of the building or structure
  • the amount of qualifying expenditure incurred on its construction or purchase
  • the date on which the building or structure is first brought into non-residential use, and
  • such other supplementary information as may be reasonably required by HMRC.

Anti-avoidance rules

To ensure relief can be obtained only for genuine business costs on actual construction works, anti-avoidance rules deny or restrict the relief in certain circumstances.

  • To prevent leases being used to give more than one party separate interests in the same structure or building.
  • To prevent relief where there are arrangements with a main purpose of obtaining relief for works that commenced before 29 October 2018.

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