In the 2018 Autumn Budget, Chancellor Philip Hammond announced a new capital allowance, the Structures and Buildings Allowance (SBA).
The new SBA gives relief for expenditure on certain structures and buildings. Since the abolition of the Industrial and Agricultural Buildings Allowances, no relief has been available for most structures and buildings. The SBA addresses the gap, and is intended to encourage investment in construction for commercial activity.
Relief is given on eligible construction costs incurred on or after 29 October 2018. Where a contract for the physical construction work was entered into before this date, relief is not available. The rules are subject to consultation, but the broad proposals are outlined below.
An overview of the rules
The SBA will be available for new structures and buildings intended for commercial use, and the improvement of existing structures and buildings, including the cost of converting or renovating existing premises to qualifying use.
Relief will be available for businesses chargeable to income tax and companies chargeable to corporation tax. It will be limited to the original cost of construction or renovation, and will be spread over a fixed 50-year period at an annual flat rate of 2%, regardless of changes in ownership.
On disposal of a relevant asset, the purchaser will continue to claim the annual allowance of 2% of the original cost, provided the asset continues to be used for a qualifying activity. There will be no balancing adjustments on sale for the vendor. For chargeable gains purposes, the allowable cost of the asset will be reduced by the total amount of relief claimed.
Relief for the SBA will be available from the date the structure or building is brought into use for the first time for a qualifying activity. UK and overseas structures and buildings will be eligible where the business is within the charge to UK tax.
Special provisions will apply for leasing transactions. Where an asset is leased, both lessor and lessee may be able to claim the SBA for qualifying expenditure that they themselves incur on construction works. However, special rules will apply where the grant of a lease is substantially no different from the sale of the property interest. These rules may result in the lessee becoming entitled to the attributable SBA.
Only certain expenditure will qualify. The structures or buildings must be brought into use for qualifying activities. These include trades, professions or vocations, and certain UK or overseas properties businesses – essentially commercial property lettings as residential property is excluded. The types of structures and buildings covered awaits final clarification, but is expected to include: offices; retail and wholesale premises; walls; hotels and care homes; and factories and warehouses.
Exclusions and apportionment
Expenditure on land or residential property or other buildings functioning as dwellings will not be eligible. What constitutes a dwelling is to be clarified. Work spaces forming an integral part of a dwelling, such as a home office, will not be eligible. With mixed use, such as between commercial and residential units in a development, relief will be apportioned.
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