Commercial Property owners need to be aware for future tax returns of Structures and Buildings Allowances (SBAs). SBAs will ensure that expenditure on structures and buildings will now generally be relievable over time. This should encourage investment into structures and buildings intended for commercial use across the UK.
SBAs was introduced on the 29 October 2018 as part of the Autumn Budget. This new type of Capital Allowance is intended to encourage capital investment, as it gives tax relief on the costs of physically constructing new structures and buildings.
The relief will apply to newly constructed commercial structures and buildings where the contract has been entered into on or after 29 October 2018. SBAs include the costs for conversions and renovations of existing buildings.
Offices, retail and wholesale premises, factories, and warehouses all qualify for the flat rate two percent allowance over a 50-year period. Expenditure on residential property and land will not qualify for the relief. However, where there is a mixed use between commercial and residential the relief will be apportioned between these. Where the structure or building is renovated or converted, the expenditure will qualify for a separate two percent relief over the next 50-years.
SBAs will not impact the claimant’s entitlement to claim plant and machinery and integral features and fixtures such as lighting or heating systems. These will continue to qualify for writing down allowances including Annual Investment Allowance (AIA). Any expenditure that is claimed as SBAs will not qualifying for AIA.
If the building is subsequently sold there will be no balancing allowance or charge created, instead the new owner will claim the remaining allowances until the end of the 50-year period.
The introduction of SBAs does not reduce the importance of contacting your tax adviser to prepare a detailed Capital Allowances review. It will still be necessary to identify plant and machinery and integral features, as they significantly accelerate the benefit on these costs and cash flow for businesses. While SBAs are good, they don’t supersede the benefit of doing a cost segregation exercise, as it is unlikely anyone who incurs the cost will be in the business to see the cash flow benefit in 50-years’ time.