This article deals with the structures and buildings allowance. Originally introduced on 29 October 2018, HMRC have updated the allowance from April 2020.

Are you intending to build, buy or lease a building/structure? If so, this article is written for you. If you are not, it is a five-minute read and you have got this far – why stop now?

Originally, the allowance allowed for a two percent straight line claim to be made on qualifying expenditure (both personal and corporate taxation). A simple statement, but there are some key details that need unpacking.

To be clear at the outset, expenditure on residential property and other buildings that function as dwellings will not qualify – how disappointing. Moreover, qualifying expenditure can only be claimed once. So where items have already been claimed for (such as plant and machinery or integral features) no further amount may be claimed under the SBA.

If the SBA is a complete unknown to you or you need a refresher, let us firstly set out the original conditions before dealing with the update.

What does your business need to do to qualify?

To be eligible to claim the allowance, the business must be undertaking a qualifying activity. A qualifying activity includes a trade, profession, vocation, or a UK (and foreign) property business. This is pretty much every business, except for UK furnished holiday let businesses which do not qualify.

What types of transactions are included?

If you build, buy, or lease a structure and all construction contracts were signed on or after 29 October 2018, and that structure has been used for a qualifying activity, you may be able to claim tax relief. You must have paid some of the costs towards the purchase, construction, or renovation of the structure, but it needs to be signed on or after 29 October 2018. The types of expenses that may be claimed are design fees, construction work, renovation, and conversion costs. Note that special rules apply to leases of 35 years or more, but this will not be discussed here.

What expenses do not qualify?

There are many expenses that do not qualify, and these would include costs in connection with:

• items you have already claimed for using another allowance (i.e. capital allowances for plant and machinery)

• items included in the price of the structure (land and integral features)

• planning permission

• landscaping

• financing

What happens if you sell the structure or cease to use it?

Where the structure ceases to be used for a qualifying activity (because it has been sold, demolished, or used for a non-qualifying activity) the allowance will cease to be available. At this point there will, in most cases, be a capital gains tax consequence. You will need to calculate the total amount of relief received from the SBA and add this amount to any proceeds received in determining the chargeable gain or allowable loss.

Given the above, hopefully it will be clear to the reader that the allowance will often only serve as a deferral relief. The benefit received each year will be stored up only to potentially come back into charge at such time as the qualifying activity ceases or the property is sold. The only benefit of making this claim (as I see it) is for cash flow purposes unless the structure is likely to depreciate in value.

If you are considering making a claim, thought should be given to the additional compliance requirements and whether it is worthwhile. There is an argument to be made that future rates of capital gains (corporation tax) may be lower and that there could be a genuine tax saving to be had, but the opposite may also be true.

How to make a claim

A claim for the allowance is made in your Tax Return (personal or corporate).  In addition, you will need to prepare an allowance statement. The allowance statement is a document to be retained by you and should include information relating to the qualifying expense being incurred, the date and when it started to be used in the business.

After all that background – What has changed?

From April 2020, the SBA rate has increased from 2% to 3% and the qualifying spend will now be available over 33⅓ years rather than 50 years. The changes apply to all qualifying expenditure incurred on or after 29 October 2018 and not just to new expenditure from April 2020.

It is important to note that where there is a straddle in your chargeable period for capital allowances, the period needs to be apportioned for the period pre-April at 2% and 3% for post-April period on a day basis.

If you believe you are eligible to claim the SBA or would like to discuss other reliefs that may be available, please do get in touch as Lewis Brownlee would be delighted to assist you.