Budget 2018 – Structure & Building Allowances

A new capital allowances regime has been introduced for structures and buildings, known as the Structures and Buildings Allowance (SBA) and applies to new non-residential structures and buildings.

Relief will be provided on eligible construction costs incurred on or after 29 October 2018, at an annual rate of 2% on a straight-line basis.

This SBA directly addresses a gap in the current capital allowances system, where no relief has been available for most structures and buildings, although capital allowances are available for plant and machinery that forms integral features of buildings, such as air conditioning.

The aim of the SBA is to relieve the costs of physically constructing new structures and buildings. This will encourage investment in:

  • the construction of new structures and buildings that are intended for commercial use,
  • the necessary works to bring them into existence and
  • the improvement of existing structures and buildings, including the cost of converting existing premises for use in a qualifying activity.

These assets are already depreciated in many businesses’ accounts, but until now without tax relief being given on all the expenditure.

The SBA is intended to stimulate investment in structures and buildings that are intended for commercial activity. Neither land nor dwellings will be eligible for relief. Where there is mixed use – for example, between commercial and residential units in a development – relief will be reduced by apportionment.

Relief will be limited to the original cost of construction or renovation, relieved across a fixed 50-year period, regardless of ownership changes.

Where a business acquires an unused asset that has already been constructed by a developer the qualifying expenditure will be the price paid by the business less any amount relating to land. A valuation will be required to separate the amount of the land cost from the cost of the structure or building.

The relief will apply to newly constructed commercial structures and buildings where all the contracts (not letters of intent) for the physical construction works of the structure or building (including any contract for preparatory works) are made in writing and are entered into (signed and dated by the bound parties) on or after 29 October 2018. Similar rules will also apply to all the contracts for construction works, including any contracts for physical preparatory works in whole or in part, involving renovation or conversion of existing structures and buildings for a qualifying use.

The relief is designed to act as an incentive for businesses in respect of qualifying capital expenditure. To ensure that relief can be obtained only for genuine business costs on actual construction works, anti-avoidance rules will deny or restrict the relief in appropriate circumstances.

Mitchells Partner and Chartered Tax Adviser, Tim Leeman commented “This sounds rather like a modern form of the old, and much missed, Industrial and Agricultural Buildings Allowances. We, and many others have always argued that a similar relief should be re-introduced. It is great news for any businesses currently looking to buy or build new business premises. It will allow businesses to deduct 2% of the cost of any new non-residential structures and buildings off their profits before they pay tax. We are delighted to clarify that premises used as hotels and care homes will qualify for the SBA”.

If you wish to discuss how these changes impact your business, please contact one of our Chartered Tax Advisers.