An update on Structures & Buildings Allowances (SBAs)
Those of us who remember claiming Industrial Buildings Allowances (IBAs) before they were finally phased out in 2011, were intrigued by the reintroduction of a new building’s-based relief in the 2018 budget, apparently reversing policy introduced by the last Labour Administration.
There is a dearth in good quality new commercial property on the market at the moment and such an historic lack of investment is something that the last chancellor wanted to address. He therefore introduced a new annual writing down allowance on the construction cost of commercial property. Conceptually this relief operates in a similar manner to the old IBAs and provide for a straight line write down of qualifying expenditure by a business over a 50-year period.
After a consultation period the final legislation came into force on 05 July this year, however relief can be claimed in respect of the costs incurred on non-residential building incurred on or after 29 October 2018 (the date of the original announcement).
The 2% writing down allowance is available for all kinds of business and starts after a property has first been brought into use. It should be noted that the first use of the building after qualifying expenditure has been incurred must be for non-residential use.
SBA expenditure is not put into a general pool, instead each separate building will have its own 50-year life and own allowable expenditure to write down over that period.
The original proposals stated that a taxpayer would not be able to claim SBAs for any period in which the property was not in use, however this provision was dropped because it was considered to be too complicated to administer. Therefore, the relief is available even for periods where the property is not being used by the business.
A claim cannot be made in respect of any expenditure that qualifies for capital allowances as plant and machinery such as fixtures and fittings. However, relief is available for all other costs associated with the construction of the building, costs of demolition or land alterations necessary for construction.
There is no relief for the costs of land itself therefore valuations might be required where the property forms part of a first-time purchase from a developer.
Unlike the old IBA rules there is no clawback of claimed SBA’s when the property is sold. Instead the purchaser may claim the residue over the remainder of the 50 year. Whilst this rule takes away the complexity of operating SBA’s, you cannot claim relief for the purposes of capital gains in respect of costs which have been taken into account for an SBA claim.
Additionally the demolition of a building will not be treated as a disposal event for the purposes of SBAs, instead any SBAs which have not been given at that date will be taken into account as part of the cost of the building and used to calculate the capital loss which will arise at the date of demolition.
At the time of drafting we are awaiting guidance from HMRC on the new legislation where no doubt, certain nuances with regard to interpretation will be clarified.
This is a return of a welcome relief for the costs of building or acquiring commercial property. Its operation is less restrictive than the old IBA regime however one wonders how effective a 2% writing down will be in encouraging the kind of investment envisaged by our last chancellor.