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Capital Allowance for New Structures and Buildings

About Structures and Buildings Allowance (SBA)

The United Kingdom Chancellor, David Lidington, on 29 October 2018 announced the introduction of a new capital allowance for buildings and structures i.e. Structures and Buildings Allowance (SBA) for new non-residential structures and buildings. The Structures and Buildings Allowance will provide assistance to enhance commercial investment in the United Kingdom, further develop the case for new structural assets, and augment tax benefits for such assets. The introduction of SBA signifies the most noteworthy transformation of the capital allowances system from the time when Industrial Buildings Allowances (IBA) was abolished. The Structures and Buildings Allowance can be availed for new construction expenses on non-residential structures and buildings, and will be distributed and paid-out in a period of 50 years at a percentage of 3% per year. The allowance is also accessible for the procurement of new properties from developers that are in-line with the pertinent standards. It is anticipated that SBAs will not be applicable for assets that meet the requirements for plant and machinery allowances (PMAs). For that reason, taxpayers must carry on claiming plant and machinery allowance on eligible fixtures (together with integral features) attached to structures and buildings.

Capital Allowance for New Structures and Buildings
In this article we cover:

What kinds of expenditures are eligible for the SBA?

  1. Capital expenditures on existing commercial structures or buildings that are being renovated or converted.
  2. Repairs that are required as a result of renovating or converting existing commercial structures or buildings.
  3. Construction and associated costs and fees for new properties.
  4. Claims are restricted to the lower of the following:
    1. The amount of expenditure that must be documented.
    2. Market value.

What kinds of expenditures are not eligible for the SBA?

The following are not considered qualifying expenditures for SBA:

  1. Acquisition or change of the land, including remediation of land.
  2. Provision of plant or machinery. 
  3. Any expenditure in excess of the work's normal market rate.
  4. Fees for planning and related charges.
  5. Fees for land acquisition, stamp duty land tax (SDLT) or its devolved equivalent, or any other costs associated with land acquisition.
  6. Landscaping, other than creating a new structure.

Also Read: Super deduction and first-year capital allowances

Allowance period

The allowance period is 33 and one-third years from the start date of the allowance period.

Claims may be filed for the whole of the allowance period, beginning with the latter of these two dates –

  1. The date when the building is used first time for a non-residential purpose; or
  2. The date on which you incurred the qualifying expenditure. 

Additional qualifying costs can be combined, with claims beginning on the first day of the next accounting period.

The SBA can continueto be claimed for the remaining allowance period if –

  • A structure is acquired from another individual who has previously made a claim;
  • The structure is used in connection with a qualifying activity; or
  • The structure is out of use following a period of usage for a qualifying activity.

The SBA will end when the structure is sold or disposed of. The new owner should be given a copy of the allowance statement to claim any remaining allowances.

Applicable rates and allowance period

The applicable rate for structures and buildings allowance

Corporation tax Rate
29 October 2018 to 31 March 2020 2%
1 April 2020 onwards 3%
Income tax Rate
29 October 2018 to 5 April 2020 2%
6 April 2020 onwards 3%

How do the Structure and Building allowance work?

The SBA provides relief at a rate of 3% every year (2% before - April 2020) on a straight-line basis for 33.3 years. While it is not as generous as the faster-depreciating rates for P&M, it should be noted that SBA-eligible expenditure frequently represents the majority of expenditure on a non-residential building and also becomes a larger proportion of total annual allowances the longer the asset is held. It is critical that stakeholders understand both the benefits of SBA and the practicalities of its administration.

The SBA can be claimed beginning with the date on which the completed building or structure (or relevant portion) is put in qualified (non-residential) use. The amount of SBA will be determined by the amount of qualifying construction expenditure.

Also Read: How to Make Corporation Tax Payment to HMRC?

Amendments Made to Draft Regulation from Technical Note

The key amendments to the draft regulation, in comparison to the requirements defined in the technical note, are as follows:
  1. The technical note stated that the new Structures and Buildings allowance will only be obtainable for ventures or developments, where agreements for physical construction were signed on or post 29 October 2018.
    1. The draft regulation reiterates its stand, stating that the new relief is only be obtainable ‘for all agreements pertaining to the physical construction works that began on or post 29 October 2018’. The legislation ignores schemes where a construction agreement or associated preliminary agreement was entered/signed before 29 October 2018.
  2. The draft regulation has removed theoretically complex requirements around the possibility for applying for SBA all through the periods of disuse. As an alternative, relief will continue to be accessible, with no exclusion for phases of disuse – this will be far meeker from an administrative standpoint.
  3. For devastated structures/buildings, the technical note had specified that a ‘shadow’ Structures and Buildings allowance would be offered.
    1. The draft legislation has presented a contribution allowance for Structures and Buildings expenses, which functions in the same way as contributions towards expenses meet the requirements for PMAs.
  4. The draft legislation states that an individual will not be eligible to an allowance if the structure or building is demolished, with aid being attained via the chargeable gains computations.
  5. Approximations cannot be used to compute Structures and Buildings allowance and real amounts must be presented, and in case real expenses cannot be presented then the Structures and Buildings allowance expenses are considered as Nil. In various circumstances (for instance, where pricing is a commercially delicate theme and unobtainable), there can time and again be no real-world substitute but to carry out an exercise to re-work construction price statistics based on circulated pricing guides. This provision seems predominantly restricting and has the prospects to curb tax relief for several projects.
  6. The draft legislation presents the idea of an ‘allowance statement’ which will support/back and authenticate entitlement to Structures and Buildings allowance. This statement must take account of information concerning dates when the construction contracts were signed, information of the Structures and Buildings allowance succeeding expenses incurred, the date when structure/building is brought into use for the first time and such other additional information as may be judiciously needed by Her Majesty's Revenue and Customs (HMRC).

Other Draft Legislation Notes for Structures and Buildings Allowance

  1. The legislation does not exactly outline or provide any definition pertaining to structures and buildings. Though it does state that expenses incurred on the procurement of land, landscaping and modifying the land (except modifying land for development pertaining to a structure or building), land repossession and remediation, as well as structures/buildings for housing use will not meet the requirements for the relief.
  2. The draft legislation positions that expenses on machinery or plant are precisely considered as debarred expenditure for the determination of Structures and Buildings allowance. This implies that taxpayers will still be required to undertake a capital allowance study for construction schemes to classify the machinery and plant.
  3. Additionally, the draft legislation has information around topics such as highway undertakings, acquisitions from developers, interaction with Value Added Tax (VAT) and co-ownership arrangements.

Key Points To Be Considered From Structures And Buildings Allowance

  • Define a process to classify key signposts such as which schemes will be debarred from Structures and Buildings allowance because of timing of contractual commitments, and how an individual will evaluate ‘the brought into use condition’
  • Track each scheme with a predetermined 50-year tax life – this will require numerous comprehensive plans and/or a basic agreement with HMRC
  • Address the collaboration of capital allowances and Capital gains tax (CGT)
  • Re-model tax conventions and influences for prevailing and forthcoming projects
  • Obtain the actual expense figure on structures and buildings, and avoid the usage of estimation of costs used which Her Majesty's Revenue and Customs (HMRC) would not accept

Preparing For The Future for Capital Allowance

With advancement in technology, professional service companies have developed their own artificial intelligence (AI) allowance tools that help to tackle the methodological and practical implications of the conversion and continuing influence of the changes.

In case you need specialist advice on "Capital allowance for new structures and buildings", kindly call us on 03330886686, or you can also e-mail us at info@dnsaccountants.co.uk.

This article was correct at the date of publication. It is intended for general purposes only and does not constitute legal or professional advice. Independent professional advice should be sought before proceeding with any transaction.

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