Relief for structures and buildings

Donald-Drysdale By Donald Drysdale for ICAS

23 November 2018

Following the recent Budget and publication of the new Finance Bill, Donald Drysdale studies a technical note which explains the new allowance for structures and buildings.

A new relief

In his Budget speech on 29 October, Chancellor Philip Hammond announced the introduction of “a permanent tax relief for new non-residential structures and buildings, partly funded by an adjustment in the special writing down rate for long-life assets from 8% to 6% to better align the tax and accounting treatment of these assets.”

On Budget Day, HMRC issued a technical note explaining the features of the proposed Structures and Buildings Allowance (‘SBA’) and inviting views on certain aspects.

The new Finance Bill was published on 7 November with explanatory notes. Clause 29, if and when enacted, would give HM Treasury power to make regulations to provide for capital allowances on ‘buildings and structures’ – apparently abandoning the catchy new acronym ‘SBA’ after only 10 days. Nonetheless, I’ll use it in this article.


In response to a recommendation from the Office of Tax Simplification (OTS) in its recent review on simplifying tax relief for fixed assets, SBA addresses a gap in the pre-existing capital allowances system. Until now many businesses have depreciated structures and buildings in their accounts without enjoying tax relief on all the expenditure.

SBA aims to improve UK competitiveness. It seeks to do so by stimulating investment in commercial activity – specifically on new commercial structures and buildings, the necessary works to bring them into existence, and the improvement of existing structures and buildings, including converting existing premises to qualifying use.

Key features

SBA may be claimed on new commercial structures and buildings at a flat rate of 2% over a 50-year period. The qualifying amount will be limited to the costs of physically constructing the structure or building, including demolition or land alterations necessary for construction, and direct costs required to bring the asset into existence.

Costs of new conversions or renovations of such structures or buildings will also qualify, but only if capital – not if they can be allowed as deductible in calculating profits. Where an existing structure or building qualifies after renovation or conversion, the costs will qualify for a separate 2% relief over the next 50 years.

SBA claimants must have an interest in the land on which the structure or building is constructed. Costs of land or rights over land will not be eligible, nor will costs of obtaining planning permission. However, costs of preparing land for in-house construction may qualify.

For leased structures or buildings, both lessor and lessee may be eligible for SBA on their own costs where each uses the asset for a qualifying activity. HMRC invite views on their proposal that, where the lease doesn’t exceed 35 years, all the allowances will stay with the lessor.

No SBA will be due on residential property and other buildings used as dwellings, or on workspaces in domestic settings, and HMRC invite views on how ‘dwelling’ should be defined. Dwellings will include university or school accommodation, military accommodation and prisons – although hotels and care homes will qualify for SBA.

Where use is mixed between commercial and residential, relief will be reduced by apportionment – or excluded altogether unless more than 10% of the costs meet the conditions for relief. Shared areas covering both residential and commercial use won’t qualify, in contrast to the treatment of communal areas for plant and machinery allowances.

SBA expenditure will not qualify for the annual investment allowance (AIA). Integral features and fittings will continue to qualify for writing down allowances as plant and machinery, including AIA up to its annual limit. SBA won’t be due on any costs on which other capital allowances or tax deductions are given.

For costs to be eligible, all contracts for the physical construction works must be entered into on or after 29 October 2018. For speculative building and for structures or buildings constructed ‘in-house’, the construction activity must begin on or after 29 October 2018.

Claims can be made by businesses chargeable to income tax or corporation tax, once the structure or building enters qualifying use, but not on costs incurred more than 7 years before the qualifying activity commences. Relief will be available for UK and overseas structures and buildings where the business is within the charge to UK tax, but HMRC invite views on how this should work.

Where a qualifying asset’s value appreciates after acquisition, SBA will not increase. Sale of an asset won’t trigger a balancing adjustment, but the vendor’s cost for chargeable gains will be reduced by the total SBAs they have claimed. The purchaser will take over the remainder of the SBAs and write them down over the remaining part of the 50-year period.

Special provisions will deal with changes of use of structures or buildings, and periods of non-qualifying use (e.g. for residential purposes). HMRC invite views on provisions to accommodate periods of disuse of up to two or five years depending on the circumstances.

Draft regulations, when published, will also seek to ensure that the SBA rules take proper account of instances where concepts differ under Scots law.

Industrial buildings

Industrial buildings allowances (IBA) were abolished in 2011. Practitioners who used to deal with IBA will find similarities in the SBA rules but, as SBA will be implemented by secondary legislation, you’ll need to be on the lookout for unexpected differences.

There was dissatisfaction that, under the IBA regime, no allowances were given for ‘commercial’ (i.e. non-industrial) buildings and structures. By contrast, “commercial structures and buildings” for SBA will include offices, retail and wholesale premises, walls, bridges, tunnels, factories and warehouses – apparently covering asset types previously qualifying for IBA plus those that had attracted concerns by their exclusion.

Acquisitions and disposals

On acquisition of a new structure or building from a developer, an apportionment will be needed; the eligible costs will be the price paid less the value of the land acquired.

On acquiring a second-hand structure or building, the purchaser will need evidence of the original costs incurred and the date qualifying use began, in order to claim the remainder of SBA due.

In SBA computations, acquisitions and subsequent capital costs will have to be maintained as separate ‘pools’ of expenditure.


Anti-avoidance provisions will seek to prevent manipulation of SBA for a tax advantage. These will disallow attempts to manipulate pre-existing contracts, address other misuses of the commencement provisions, and prevent leases being used to give more than one party separate interests in the same structure or building.

Request for feedback

While SBA may be widely welcomed, it is unsatisfactory for a major new tax relief to be implemented by secondary legislation, without proper Parliamentary scrutiny, and ICAS will be making representations based on members’ views.

If you wish to respond to the four questions raised in the Budget Day technical note or have views on any other points it mentions or on the draft regulations once they are published, please email your comments to the ICAS tax team.

Article supplied by Taxing Words Ltd


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