Capital Allowances on Buildings and Structures: An Update

19/Aug/2019

In the 2018 Budget the then Chancellor Philip Hammond announced a revision to the capital allowances framework around commercial buildings and structures.

Following a period of consultation the Structures and Buildings Allowance (SBA) legislation took effect from 5 July – this guide aims to set out the key changes and the implications they may have for your business.

Key features of the allowance include:

  • Provision of relief at a flat rate of 2% over a 50 year period for both new buildings and conversions or renovations of existing buildings;
  • Available to both UK and foreign buildings (where the business is chargeable to tax in the UK) for eligible expenditure on contracts entered into after 28 October 2018;
  • Applicable to costs of physical construction, demolition, land alteration and other direct costs of bringing the building into existence and claimable when the asset comes into use;
  • Relief is not available for residential property or where part of the building is residential and the claimant must have an interest in the land on which the building is constructed;
  • Sale of the asset does not result in a balancing adjustment (as is the case with most other non-property assets) but the allowance is transferred to the new owner to continue over the remainder of the writing-down period;
  • There are no changes to the writing down allowances (including the Annual Investment Allowance (AIA) if applicable) for integral features, fittings or equipment currently available, however the SBA will not fall within the AIA framework.                                    

Potential impacts on your business:

It should firstly be acknowledged that this change is intended to have a positive impact on relevant taxpayers who under the old regime would not have received tax relief for similar costs.

There are, however, administrative points to consider to ensure both compliance with and availability of the relief legislation.

These include the requirement to prepare and retain detailed records of the costs comprising the claim for both the initial developer of the property and for provision to any future owners on sale in the form of an ‘Allowance Statement’ detailing the following:

  • The date of the contract for construction of the building;
  • The amount of qualifying expenditure; and
  • The date on which the building entered into use.

Lack of preparation of this document or provision to future owners reduces the relief to both parties to £nil, so clearly it is important to ensure this is available from the outset and retained on that basis.

For further information or to discuss how the changing legislation could affect your business please contact us.