Structures and Building Allowance (SBA) was introduced in the 2018 Autumn Budget to provide a straight-line relief on eligible construction costs incurred for new non-residential structures and buildings.
The objective of this relief is part of a long-term commitment to encourage capital investment in the UK, especially new investments in structural assets. SBA’s address a gap in the current Capital Allowances regime, where no relief was available for capital expenditure on assets which were not ‘machinery’ or ‘plant’.
SBA’s will provide tax relief on eligible construction, renovation or conversion costs incurred on or after 29th October 2018, at an annual rate of 2% on a straight-line basis over a 50-year period, once trade has commenced in the building.
The key highlights are listed below:
- relief will be given at a flat rate of 2% over a 50-year period
- relief will be available for new commercial structures and buildings, including costs for new conversions or renovations
- relief is available for UK and overseas structures and buildings, where the business is liable for UK Corporation Tax
- relief will be limited to the costs of physically 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 available for eligible expenditure incurred where all the contracts for the physical construction works were entered into on or after 29th October 2018
- claims can only be made from the point in time when a structure or building first comes into use
- land costs or rights over land will not be eligible for relief, nor will the costs of obtaining planning permission
- the claimant must have an interest in the land upon which the structure or building is constructed
- dwelling houses will not qualify, nor will any part of a building used as a dwelling where the remainder of the building is commercial
- sale of the asset will not result in a balancing adjustment – instead, the purchase takes over the remainder of the allowances written down over the initial 50-year period
- expenditure on integral features and fittings of a structure or building, which are currently allowable as expenditure on plant and machinery, will continue to qualify for writing down allowances for plant and machinery including the Annual Investment Allowance (AIA) up to its annual limit, currently set at £1m
- SBA expenditure will not qualify for AIA
- where a structure or building is renovated or converted so it becomes a qualifying asset, the expenditure will qualify for a separate 2% relief over the next 50 years.
Qualifying expenditure includes the costs related to construction of structures or buildings, including costs of demolition or land alterations necessary for construction. Revenue expenditure incurred as a deduction when calculating profits of the business are excluded. SBA’s also include incidental repairs, but excludes the cost of the land and any expenditure incurred in altering the land through reclamation, remediation and landscaping, and in obtaining planning permission.
Where a structure or building is divided into separate parts i.e. used for residential and commercial purposes, only a proportion of the expenditure incurred will qualify for SBA’s.
In conclusion, SBA’s does not replace the current Capital Allowances scheme for fixtures in a building, whereby relief is given at 18% on plant and machinery and 6% on integral features. Considering that businesses can also claim 100% first year allowance up to £1m, it is important to review entitlement and claim Capital Allowances relief in the most beneficial way. The specialist Capital Allowances team at Innovation Tax, compromising RICS surveyors, tax experts and a former HMRC inspector, ensures Capital Allowances claims have been fully maximised and claimed correctly.