Structures and Buildings Allowance (SBA) for Capital Allowances
It was announced in the Budget 2018 that the government was introducing a new Structures and Buildings Allowance (“SBA”) for costs incurred in relation to the construction, conversion, and/or renovation of non-residential structures and buildings.
Effective from 29 October 2018, the SBA is available on the construction, conversion, and/or renovation costs relating to non-residential structures located in the UK or overseas.
The SBA is given at an annual rate of 2% on a straight-line basis for a fixed 50-year period from the date the structure comes into use. Interestingly, there will not be a system of balancing charges or allowances on a subsequent disposal of the asset, and the relief will run regardless of ownership changes.
The aim of the relief is to improve the UK’s international competitiveness by addressing a gap in the current capital allowances system where no relief is available for most structures and buildings. The costs of construction/conversion/renovation will now be relieved to encourage investment in commercial property.
The building or structure must have been brought into use for a “qualifying activity” within seven years of the expenditure in order to qualify for the relief. Qualifying activities include a trade, profession or vocation, a UK or overseas property business that is an “ordinary” business (not a furnished holiday let business), or a business that is involved in managing the investments of a company with an investment business.
Expenditure on dwellings is not eligible for relief, nor is expenditure incurred in relation to work spaces within domestic settings (e.g. a home-office). Where there is a mixed use of the building, then relief will be reduced by apportionment.
Expenditure that qualifies for the SBA will not be eligible for the Annual Investment Allowance (“AIA”). However, expenditure on integral features and fittings that are currently eligible for capital allowances and the AIA will continue to qualify.
If the relief is not claimed it will not carry forward to a later period and will be lost. With this in mind, care should be taken when qualifying expenditure has been incurred to ensure that all possible claims for relief are made.
Trick or Treat? Tax Highlights from Budget 2018 (29 October 2018)
“Keep Capital Allowances” says OTS (19 July 2018)
Making Allowances for Capital Gains (1 January 2018)