Buildings comms

In his budget speech to Parliament on 29th October 2018, the chancellor announced the introduction of a new tax relief in the form of the structures and buildings allowance (SBA). The aim of this new capital allowance is to improve the UK’s international competitiveness and encourage investment in new commercial structures and buildings. The writing down allowance is to be set at 2% of qualifying expenditure on a straight-line basis.

Finance Act 2019 – which received Royal Asset on 12th February 2019 – includes provisions in section 30 which permit the treasury to introduce this new allowance via secondary legislation. The Act defines the broad framework of the allowance, but significantly does not include the detail. HMRC have published a technical note about this allowance, and plan to hold a formal technical consultation once draft legislation is published. It is expected that the allowance will be formally introduced via statutory instrument at some point following Royal Asset of Finance Act 2019.

Qualifying conditions

As with any tax relief, there are a number of conditions that must be satisfied in order for the new structures and buildings allowance to be available.

The contract in respect of the expenditure must be entered into on or after 29th October 2018, and the expenditure must be incurred on new commercial structures and buildings. Expenditure on land or any form of dwelling therefore does not qualify. The term structures and buildings “include offices, retail and wholesale premises, walls, bridges, tunnels, factories and warehouses”. Renovation or conversion expenditure on an existing structure or building will also qualify, although any expenditure that meets the definition of integral features will continue to qualify for plant and machinery allowances rather than the SBA.

The structure or building must be brought into use for a qualifying activity which broadly means any trade (including ring fenced), property business, or investment business that is within the charge to corporation tax. Accordingly, expenditure on overseas structures or buildings will qualify provided that profits of the activity are chargeable to UK corporation tax. Expenditure will qualify if it is incurred up to, but not more than, seven years before the structure or building is brought into use.

Where a structure or building is used for different purposes, some of which qualify and some of which do not, allowances are available on the qualifying portion of the expenditure, provided that the qualifying expenditure exceeds 10% of the total. Similarly, where a structure or building changes in use from qualifying to non-qualifying, allowances will not be available for the period of non-qualifying use (subject to a two year grace period, extended to five in cases where the structure or building “substantially no longer exists” following extensive damage).

Expenditure on structures and buildings does not qualify for the annual investment allowance.

Writing down allowance

Relief is available on qualifying expenditure from the point the structure or building is first brought into qualifying use. The writing down allowance is to be set at 2% of qualifying expenditure on a straight-line basis, thus providing relief for expenditure evenly over a period of 50 years. The allowance is pro-rated down for accounting periods less than 12 months, or where the qualifying activity commences or ceases during the period.

Where relief is not claimed, that amount of allowance does not remain available to be carried forward but is instead lost. This is intended to be a simplification measure to ensure that a consistent amount of relief is available over the tax life of the structure or building, and indeed that the tax life is always equal to 50 years.

Following on from this principal, disposal events also do not give rise to a balancing charge or allowance. Writing down allowances are available for the seller up to the date of disposal, but no further capital allowance charge or relief is given irrespective of the sale proceeds received. For chargeable gains purposes the allowable cost is reduced by the allowances that were claimed. For the purchaser, writing down allowances are available for the remaining tax life of the structure or building, based upon the original amount of expenditure and provided that the asset remains in qualifying use.

Changes to Alphatax

A new statement will be introduced to the existing Capital allowances section of the contents tree to calculate the tax relief available on expenditure on structures and buildings. This statement will take the same format as previous capital allowance statements relating to buildings have done, being an insertable statement that features insertable rows, giving users the flexibility to group or separate out sites and items of expenditure however suits them. The statement will be available at both trade (including property businesses) and non-trade level.

The inputs contained within the statement will be similar to the IBAs statement, with the basics being that an amount of expenditure creates a ‘residue’ that carries forward and is reduced by the 2% writing down allowance each year. The availability of allowances depends on a date of first use being entered, and this allows for expenditure to be accumulated before becoming qualifying at the point the building or structure is brought into use. Inputs are also provided for further considerations within the rules such as any period of non-qualifying use, transfers of ownership, or disclaiming allowances.

Upon a disposal, no balancing charge or allowance arises and so the date of disposal (rather than the proceeds received) defines the value of the disposal for tax purposes. Alphatax will keep track of the allowances that were claimed over the period of ownership for chargeable gains purposes. The person acquiring the structure or building must be aware of the amount of the original expenditure and date of first use, since this forms the basis for future allowances available to them, rather than the amount of consideration they paid (the difference between these two amounts is an ineligible cost for capital allowances purposes).

We anticipate that these changes will be included in the V19.0 edition of Alphatax which is due for release in Q2 2019 (however as explained above this depends on the relevant provisions having been enacted via statutory instrument).


Businesses that invest in the construction of new commercial buildings or structures will certainly see this new allowance as a positive step that will provide welcome and valuable tax relief for certain costs associated with their activities.

However this allowance has ostensibly been paid for by a reduction in the special rate pool writing down allowance from 8% to 6% (which applies to existing pools, as well as new expenditure) and so there will inevitably be losers as well as winners in the short term.

Certain aspects of the new allowance that HMRC state are intended to “simplify” the approach also make the structures and buildings allowance look different to the other existing categories of capital allowances, and these features will take a little getting used to.

A consultation period is yet to be held and draft legislation is yet to be published, so we must wait to see what the final provisions look like.


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