Structures & Buildings Allowance – Are you eligible?

Structures and buildings capital allowances
Feb
20
Posted 2019 by Chris Davies

In his 2018 Budget, the Chancellor announced a new “Structures & Buildings Allowance” (“SBA”) for new non-residential structures.

“Hark, it’s an Industrial Buildings Allowance”, I hear you cry! And you probably wouldn’t be too far off the mark.

Relief is available for eligible construction costs incurred on or after 29 October 2018 and will be given at a rate of 2%.

Its clear intention is to stimulate investment in structures or buildings that are intended for commercial activity, although policy commentators out there will be wondering why on earth the UK needs more commercial space, with many offices and shops lay empty. The fact of the matter is that this is probably targeted at commercial developers building mammoth warehouses for inward investment in the UK as a shipping destination and perhaps also at renovations of buildings that have lay empty for some time. Whether it does enough to encourage investment into Brexit Britain remains to be seen.

So who can claim and what does it mean for SME’s?

Neither land nor dwellings will be eligible for relief. Where mixed use is in point then apportionment will be required. No relief is available for home-offices or other spaces within a domestic setting.

Here are some of the key points:

  • New commercial structures or buildings, including costs for conversions or renovations;
  • For UK and overseas structures and buildings where the business is within the charge to UK tax
  • Relief will be given for the costs of constructing the structure or building, including costs of demolition or land alterations necessary for construction, and direct costs required to bring the asset into existence
  • Relief is only available for eligible expenditure incurred where all the contracts for the physical construction works were entered into on or after 29 October 2018
  • A claim can only be made when a structure or building first comes into use and cannot be claimed if the expenditure was incurred more than 7 years before a qualifying business activity commences
  • The claim in a short accounting period is adjusted on a pro-rata basis as with other capital allowances. Similarly where the allowance is brought into use part way through an accounting period then the claim will be time-apportioned.
  • The claimant must have a right or interest in the land on which the structure or building is constructed
  • Sale of the asset will not result in a balancing adjustment, the purchaser takes the remainder of the allowances and writes them down over the remainder of the unexpired period
  • None of the above affects a claim for plant & machinery or integral features capital allowances and the AIA remains in existence
  • SBA’s will not qualify for AIA
  • Relief is given as a straight-line adjustment to taxable profits at 2% per annum over a 50-year period
  • If a building changes its use or ceases to be used in a business then relief can be claimed for a further two years beyond which no claim for relief will be available
  • There are specific provisions where a ready built asset is purchased, and/or where the transaction involves the lease of premises.

What is currently uncertain?

  • The definition of dwelling for this particular purpose has not been defined, but we know that care homes and hotels will qualify for SBA
  • There will be no relief for workplaces that are an integral part of a dwelling, so what about standalone home offices that people have purpose built in the gardens? (We would expect that if it qualifies for main residence capital gains tax relief then it probably won’t be permitted, but that hasn’t been confirmed).

As with all tax legislation, there are anti-avoidance provisions designed to prevent abuse. Final details should be published in just over a month as part of the Spring Budget.

If you have begun to build, built or are even contemplating the building of a structure that you think may qualify then please do not hesitate to contact Phil Kinzett-Evans, Tax Director, at pkinzett-evans@ross-brooke.co.uk or your usual point of contact within the firm and we would be very happy to offer our professional guidance on your plans.