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Following the announcement made in the 2018 Autumn Budget, HMRC has now published the draft secondary Structures and Buildings Allowance (SBA) legislation. Here, we take a look at which costs are allowable.

A new capital allowance

Ever since the Industrial Buildings Allowance (IBA) ended in 2011, there has not been another allowance on commercial buildings. The SBA came into effect in October 2018, and changes that, although there are some differences when compared to the IBA. The main difference is that there are no balancing adjustments to the capital allowance computation on the sale of the property.

The SBA gives relief for expenditure on certain structures and buildings which are intended for commercial use. Additionally, it also gives relief on the improvement of existing structures and buildings, including the costs associated with renovating or converting existing premises to qualifying use.

Qualifying costs

The new rules apply to qualifying costs if:

  • they are incurred on the construction or acquisition of a building or structure
  • the building or structure is not in residential use
  • there is a qualifying activity – such as trades, professions or vocations and certain UK or overseas property businesses – essentially, commercial property lettings.

The allowance that is available on the qualifying expenditure is given across a fixed 50-year period at 2% per annum on a straight-line basis, regardless of changes in ownership.

Capital expenditure incurred on the renovation or conversion of a part of a building or structure or on repairs to a part of a building or structure that are incidental to the renovation or conversion of that part is treated as if it were capital expenditure on the construction of that part of the building or structure for the first time and so is subject to a separate 50-year write off.

Costs not allowable

The allowance is not available if the building or structure is brought into residential use or is demolished, although if it is demolished, the unrelieved amount can be deducted in the capital gains computation.

In the case of leases, for anything less than 35 years, the allowance will stay with the lessor. Allowances may be transferred to the lessee after 35 years where the capital sum of the lease is 75% or more of the total capital amount, plus retained interest.

Expenditure incurred on the acquisition of land, including all associated incidental costs, is excluded, as is the provision of plant and machinery.

Unresolved issues

The consultation is now closed to new comments, however some issues still remain unresolved:

  • The legislation does not give a definition of the terms ‘structures’ and ‘buildings’
  • It is unclear what the position is on buildings that have both residential and non-residential use
  • It is unclear how some of the information that is required to make a claim should be provided in practice.

As you can see, there is still a lot of work that needs to be done before the rules can be followed. If you think the SBA will affect your clients and would like to give them more information, please do get in touch. We have a range of products that cover this topic in detail, from guides to factsheets and client letters. Please take a look here: