Capital Allowances for Structures and Buildings

The Structures and Buildings Allowance (SBA) provides tax relief for the construction costs of non-residential buildings and structures used for business purposes.

It applies where construction began on or after 29 October 2018, and the first use of the building is non-residential. Typical qualifying assets include offices, retail premises, factories, and warehouses.

Relief is not available for residential properties such as dwellings, student or school accommodation etc.

Amount of Relief

The SBA is calculated on a straight-line basis at 3% per annum of qualifying expenditure (2% for expenditure before 6 April 2020 for individuals or 1 April 2020 for companies).

This means the cost is relieved evenly over 33⅓ years, starting from the later of:

• The date the expenditure is incurred, and

• The date the building (or structure) is first brought into qualifying business use.

If the period is shorter or longer than 12 months, the allowance must be time-apportioned accordingly.

Sale or Transfer of a Building

When a building on which SBA has been claimed is disposed of, there is no balancing adjustment.

• The seller stops claiming SBA from the date of disposal.

• The buyer may continue to claim SBA at 3% of the original qualifying expenditure for the remainder of the 33⅓-year period, regardless of the purchase price.

Both parties must time-apportion their claims for the accounting period in which the disposal occurs.

To claim SBA, the person who incurred the construction cost must prepare an allowance statement. This document should include:

• The construction contract date,

• The amount of qualifying expenditure, and

• The date the building was first brought into use.

Future owners will need this allowance statement to continue claiming the relief.

Adjustment for Pre-April 2020 Expenditure

For expenditure incurred before April 2020, the rate was 2%. This creates a shortfall in total allowances.

An additional allowance can be claimed in the final chargeable period to make up this difference, provided the owner as of April 2020 still holds the asset.

Mixed or Changing Use

If a qualifying building falls into disuse, it is still treated as being used for business purposes and SBA can continue.

However, if the building is used for residential purposes, SBA must stop and will be proportionately reduced for that period. If the building later returns to business use, claims can resume (within the original 33⅓-year period).

Where a building is partly used for business and partly for residential purposes, the SBA can be claimed on a just and reasonable apportionment of business use , but not if that use is insignificant.

Also, no SBA is available for parts of a dwelling house used for business (for example, home offices).

Qualifying Expenditure

Qualifying expenditure generally includes capital costs of constructing the building or structure.

Relief is not available if:

• The construction contract was signed before 29 October 2018, or

• The costs relate to land acquisition, stamp duty, planning, or other non-construction costs.

However, land preparation and demolition costs are eligible.

Where an existing qualifying building is renovated or converted, that expenditure qualifies as new construction, and a fresh 33⅓-year period applies.

If a new but unused building is purchased:

• From a developer, the purchase price (excluding land) qualifies for SBA.

• From a non-developer – the lower of the purchase price (excluding land) or the original construction cost qualifies.

Any pre-trading expenditure incurred after 29 October 2018 but before the trade starts is treated as incurred on the first day of trading.

Leases

Entitlement to claim SBA depends on the lease term:

• For leases up to 35 years, the lessor claims the allowance.

• For leases over 35 years, if the lessor’s retained interest is worth less than one-third of the premium, the lessee may claim the allowance.

For leases under 50 years, the premium for this test is the amount subject to capital gains tax.

Interaction with VAT

If VAT is charged on the construction or purchase of a qualifying building:

• Where VAT is recoverable, SBA is calculated on the net cost (excluding VAT).

• If VAT later becomes repayable to HMRC (for example, if the use changes), qualifying expenditure is increased by the additional VAT liability.

• Conversely, if VAT is refunded by HMRC at a later date, qualifying expenditure must be reduced by the rebate amount.

SBA does not apply to plant and machinery, including integral features and fixtures, which qualify for separate capital allowances.

Interaction with Capital Gains Tax (CGT)

When a building on which SBA has been claimed is sold, the disposal proceeds for CGT purposes are increased by the total SBA claimed to date.

This increases any gain (or reduces any loss), effectively clawing back the relief, so the SBA primarily offers a cashflow advantage rather than a permanent saving.

Where the disposal is no gain/no loss, or incorporation relief applies, the successor must add the seller’s claimed SBAs to their own base cost for future disposals.

Speak to an Expert

SBA rules are complex and can significantly impact both tax relief and capital gains on future disposal. If you’re unsure whether your building or project qualifies, or how to structure your claim effectively, get in touch with us, we’d be happy to advise and help you make the most of available reliefs.

Authored by: London Team