Structures & Building Allowance
Structures and Buildings Allowance (SBA) is a new capital allowance introduced this year. It allows tax relief if you build, buy or lease a structure and all the related construction contracts were signed on or after 29 October 2018.
This new allowance was enacted on 4 July 2019 and HMRC recently released some basic guidance on how the allowance will work. It broadly works by allowing an annual flat rate 2% tax relief on the total qualifying expenditure, for up to a 50-year period.
Qualifying Conditions
In order to qualify for this allowance, the following conditions must be met:
- The structure must be used for a qualifying activity, which is taxable in the UK. The qualifying activities are as follows:
– any trade, profession or vocation
– a UK or overseas property business (except for residential and furnished holiday lettings)
– managing the investments of a company
– mining, quarrying, fishing and other landbased trades - You must have paid some or all the costs towards the purchase, construction or renovation of the structure. The costs you can claim relief on are largely as follows:
– fees for design
– preparing the site for construction
– construction works
– renovation, repairs and conversion costs
– fitting out works
However, there are some costs you will be unable to claim on. These include:
– costs for any structure within the grounds of a residence
– costs that qualify for plant and machinery allowance
– costs you have already claimed another allowance on
– other items included in the price of the structure, such as land and integral features and fixtures
– planning permission, public enquiries or legal expenses
– costs of financing, such as loans
– any landscaping or land reclamation costs
– any costs for which you received a grant or contribution - You must have a written allowance statement, which should include the following:-
– information to identify the structure, such as an address and description
– the date of the earliest written contract for construction (must be on or after 29 October
2018)
– the total qualifying costs
– the date you started using the structure for a non-residential activity
If you are constructing a new qualifying structure, then you will need to create the written allowance statement, which will be sent on to HMRC. This written allowance statement would also need to be created if you purchase an existing unused structure to be used for a qualifying activity.
If a qualifying structure is sold, then a copy of the written allowance statement should be passed on, to allow the new owner to claim any allowance still remaining.
For extensions or renovations completed after you started using the structure, you can either record these separate construction costs on the written allowance statement or create a new
statement.
If you lease a structure for 35 years or more from somebody where SBA has been claimed, you may be able to claim the 2% annual allowance for the remainder of the 50 years. This is providing the value of their interest in the structure is less than one third of the capital you paid for it.
It is worth noting that when you sell a structure that you have claimed SBA on, the tax relief you have received will be added to the proceeds when calculating any Capital Gains Tax or Corporation Tax payable.
The date you can begin to claim SBA, will be either the date you began using the structure for the qualifying activity or the date you are due to pay for the structure or construction, whichever is the latest. In this respect, the amount of your claim will never be estimated. It will also not be possible to carry forward this relief to a later taxation period, if the 2% relief is not claimed, it will be lost.
If you sell, demolish or decide to use the structure for anything other than a qualifying activity, you will no longer be able to claim the 2% tax relief.
If you believe you may be able to benefit from this new relief please contact the Partner who looks after your affairs with more details.
