Claiming capital allowances for structures and buildings

To help us gain a greater understanding of the rules and regulations surrounding claiming capital allowances for structures and buildings, Jon Stocker, General Practice Partner at Milsted Langdon, has provided an overview of the system and how it works in this Q&A blog.

Jon, what tax reliefs are available in relation to the construction of commercial buildings and structures?

Some of you may recall Industrial Buildings Allowances, which were withdrawn in 2011. Whilst some tax allowances are claimable in respect of plant and machinery, and integral features in properties, we have seen a period of almost 10 years, where there have been no tax breaks on the construction of a building.

A new Structures and Buildings Allowance (SBA) has been introduced for qualifying expenditure incurred on or after 29 October 2018 subject to the contract for the build being originally entered into and commenced after that date.

This is an important relief.  The SBA ensures relief can be claimed for expenditure on structures and buildings which are typically not eligible for Capital Allowances.

 

What is the rate of the Structures and Buildings Allowance (SBA), and what types of building and structure are eligible for this?

The relief is given as two per cent of total expenditure spent on structures and buildings on a straight-line basis and can be claimed for up to 50 years.

The structure must be used for a qualifying activity which is taxable in the UK. You can claim for up to 50 years, starting from the date that the structure comes into non-residential use

 

Are there are any types of building that the SBA does not cover?

Residential properties, or “dwellings”, are excluded together with a number of other residential establishments including residential use for school pupils, students, the armed forces, certain residential homes and prisons.

The relief is restricted to expenditure on property held as a fixed asset.  The relief is not available to property developers.

HMRC have confirmed that qualifying activities are:

  • any trades, professions and vocations
  • a UK or overseas property business (except for residential and furnished holiday lettings)
  • managing the investments of a company
  • mining, quarrying, fishing and other land-based trades such as running railways and toll roads

If the claimant paid over the market value for a structure or its construction costs, they’ll only be able to claim for the original market value.

 

Is there any guidance available on claiming the SBA?

A claim can only be made on construction costs, which include:

  • fees for design
  • preparing the site for construction
  • construction works
  • renovation, repair and conversion costs
  • fitting out works

A claim can still be made if the structure is leased from another party provided the claimant built or renovated the structure on their behalf.

It is also possible to still claim the relief when a structure has been purchased from a third party such as a developer.

The claim is dependent on whether the structure is unused or if relief has already been claimed by the seller, there is a link HMRC guidance below for more information:

https://www.gov.uk/guidance/claiming-capital-allowances-for-structures-and-buildings

 

Is there a specific timeline for when the building must have been constructed, or can the allowance be backdated?

A claim is made through a tax return but must be accompanied by an allowance statement.

If a claim has never been made on the expenditure, the statement must be created by the claimant. The statement must include:

  • information to identify the structure, such as address and description
  • the date of the earliest written contract for construction
  • the total qualifying costs
  • the date the structure started being used for a non-residential activity

If the structure has been previously used, a copy of the existing statement will be needed otherwise a claim will not be possible.

When the structure is sold or disposed of, the allowances will stop. The allowance statement should be passed to the new owner so that they can claim any remaining allowances. There are no balancing adjustments on sale.  It is important that the solicitor dealing with the purchase for you is aware of this requirement

As I mentioned earlier, the rules commenced in October 2018, so this is the earliest date that applies

There are rules to disallow relief through attempts to manipulate contracts, such as by revising or revoking agreed contracts for construction works entered into before 29 October 2018, or other arrangements with the main purpose of obtaining relief for construction works that commenced before that date.

Relief will be unavailable wherever contracts were in place, or preparatory or construction work commenced, before 29 October 2018.

Demolition, site clearance or similar ‘enabling’ works will not in themselves constitute eligibility of a project.  There must be a structure built.

 

How will claiming the SBA affect my capital gains tax liabilities?

On disposal, the SBA relief claimed to date will be added to the proceeds for the purposes of calculating any capital gain or loss.

 

How can Milsted Langdon help me with claiming capital allowances for structures and buildings?

We can assist will all aspects of capital allowance claims, including the SBA – call us to arrange a meeting.

For help and advice, contact our expert team at Milsted Langdon today.

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