STRUCTURES & BUILDINGS CAPITAL ALLOWANCE (SBA)
The 2018 Budget announced the introduction a SBA for eligible construction costs (including costs for new conversions or renovations of existing commercial buildings) of non-residential structures and buildings incurred after 28 October 2018 as follows:
- 2% p.a. straight line basis (on original construction costs after discounts and refunds and excluding costs qualifying for land remediation relief)
- Qualifying renovations and subsequent capital work qualify over the next 50 years at 2% p.a. (i.e. relief on additional expenditure will be calculated separately)
- If relief is not claimed in any period, it cannot be carried forward and will be lost
- No AIA (annual investment allowance)
- Relief available once the property is brought into qualifying use
- Includes costs of demolition or land alterations/preparation necessary for construction, and direct costs required to bring the asset into existence (but not the land, SDLT or planning permission costs)
- With no balancing adjustments on disposal of the property – the purchaser takes over the remainder of the allowances over the 50-year period
- No prohibition for periods of disuse or where the building is being used for non-qualifying purposes.
- Dwelling houses do not qualify, nor any part of a building used as a dwelling where the remainder of the building is commercial
- Where a building is divided into separate parts, some of which qualify, the qualifying expenditure is apportioned for SBA, but must be >10%. Shared areas covering use as both a dwelling and commercial will not qualify
- On demolition, any unrelieved expenditure will be claimed as a deduction in the capital gains computation.
- Includes offices, retail and wholesale premises, walls, bridges, tunnels, factories and warehouses
- Integral features and fixtures not included (will continue to qualify for capital allowances as plant and machinery, including AIA, where applicable, so businesses seeking to maximise tax relief are still encouraged to identify separately construction costs that will qualify for capital allowances)
- The operation of the SBA regime and the information required to substantiate a claim will be onerous, especially given that the relief lasts for 50 years.
- Entitlement to SBA as currently drafted is the later of date of first use or the day on which qualifying expenditure is incurred. Therefore, the SBA claim for further expenditure after the date of first use, including snagging costs, will be time apportioned accordingly in any chargeable period.
- There is currently no prescribed form for the allowance statement.
- The interaction of claims under the SBA and plant & machinery is unclear. For example, if a claim in one category is rejected can it automatically be included in the other? What happens if a claim is out of time?
Following consultation on the draft legislation, the final published version of the legislation will be in the form of a Statutory Instrument expected in the summer.
For more information, contact Fiona Cross on Fiona.Cross@sgllp.co.uk or phone 020-7447-9000