Structures and Buildings Allowance (SBA)

Structures and Buildings Allowance (SBA): At a glance

The Structures and Buildings allowance (SBA) was announced in the Budget 2018 and applies to qualifying expenditure incurred on or after 29th October 2018. The aim of SBA is to relieve the costs of physically constructing new structures and buildings. The government’s view on that is to encourage the businesses to invest in the construction of new structures and buildings that are intended for commercial use and to renovate existing ones. Structures & buildings include walls, bridges, tunnels, offices, factories, warehouses, retail and wholesale premises.

The new allowance was introduced in the Finance Act 2019 and the it came into effect from 5 July 2019.

Key Features of SBA

Under SBA, businesses that incur qualifying capital expenditure used on structures or buildings will be able to claim the SBA over a duration of 50 year period. The allowance given is 3% (from April 2020 onwards) of the cost for a period of 50 years calculated on straight line basis.

The other key features of Structures & Buildings Allowance are: -

• Relief can be availed for new commercial structures and buildings, including costs for new conversions or renovations
• relief can be availed for UK and overseas structures and buildings, where the business is within the charge of UK tax
• Neither applicable on dwelling houses, nor on any part of the building used as dwelling where the remainder of the building is commercial
• The building or structure must be used in a qualifying activity.
• The individual becoming the claimant must have interest in the land where the asset construction is done (either freehold or leasehold)
• Relief can also be availed in case you are using structure or building the very first time for a qualifying activity.
• No balancing adjustments on sale
• The allowance get reduced if the accounting period is less than one year.
• A claim for Structures & buildings allowance must be taken in the tax return like other capital allowances.

Structures and Buildings Allowance FAQs

What type of expenditure qualifies for structure and building allowance?

The type of expenditure qualifies for SBA are as follows -

• Capital expenditure incurred on conversions of existing commercial structures or building or renovations.
• Capital expenditure incurred on incidental repairs during conversion of existing commercial structure or building or renovations.
• Cost related to construction & fees for new properties.
• Claims are restricted to the lower of:
  • Actual amount of expenditure having proof
  • Market value.

What are the qualifying activities?

SBA is applicable to capital expenditure incurred on structures and buildings used for qualifying activities which includes:

• A trade. For ex - ring-fence trade in the oil and gas sector
• A profession or vocation.
• A property business in UK or overseas that is not a furnished holiday let business.
• Managing company investments with investment business so that any profits or gains from the activity are chargeable to tax.

Can I claim the Strutures & buildings allowance for expenditure incurred on dwellings and land?

No, you cannot claim the structure & building allowance for expenditure incurred on dwellings and land as it does not qualify for the relief. Dwellings are buildings which are mainly used for long term residences such as accommodation for school or university, military & prisons but premises used for hotels and care homes qualify for SBA. Expenditure incurred on acquiring lands or right over land is also not applicable for the relief but there are certain properties which may qualify for relief despite having some residential use.

How does Structures and buildings allowance is applicable on leasehold property?

It totally depends on the lease length as who is entitled for the allowance.

What if my expenditure qualifies for other capital allowances?

You can claim your qualifying expenditure allowance only once.

• where parts of a structure or building qualify for allowances such as plant & machinery or as integral features and fixtures the expenditure is not allowed under the SBA.

How can I deal with qualifying expenditure which has multiple uses?

In case of multiple use of structure or building, Your dealing with qualifying expenditure totally depends upon the proportion of expenditure qualifying for relief and it is apportioned on immediate & reasonable basis.

Do renovations and later additions to the property qualify?

Yes, capital expenditure on renovations and later additions to the building qualifies for a separate allowance with a term of 50 years. In order to claim the correct allowances, every expenditure must be tracked every year properly.

What about changes in the use of the structure or building?

If the structure or the building used for a qualifying activity changed for use and become a home or a residence. Structures & buildings allowance is only applicable for the period under which it is used as dwelling.

What about periods of disuse, change of use, damage and demolition of the property?

You can easily claim the allowance during the periods of disuse whereas in case the structure or building is demolished, you are not able to claim SBA.

What about when the building or structure is sold?

In case the building or structure is sold, the new owner of the asset can only claim the allowance –

• if it is used for a qualifying activity.
• No balancing adjustments on disposal is available.
• In case the structures & buildings allowance is transferred to a new owner and the allowance has not already been claimed, there is a need to verify the original amount of the expenditure through the allowance statement.

What is an Allowance statement?

Allowance statement is a written statement provided by the first owner and all the future owners in order to claim SBA allowances or to make their capital expenditure nil.

What are the Anti-avoidance rules?

Anti avoidance rules are made to reject or restrict the relief in certain situations so that genuine business costs can be claimed on actual construction works.

• To prevent leases being used to give more than one party separate interests in the same structure or building.
• To disallow relief through attempts to manipulate contracts, e.g. revising or revoking agreed contracts for construction works entered before 29 October 2018 or other arrangements with a main purpose of obtaining relief for construction works that commenced before that date.
• Demolition, site clearance or similar ‘enabling’ works started before 29 October will not make a project eligible for SBA relief.

The SBA has been designed to address the gap in the current capital allowance system, where no relief was available for most structures and buildings. It is a generous allowance which not only encourage the investors but also improve the investments in new structures and buildings. For more details on the allowance, please speak to one of our tax experts.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.