The government first introduced the structures and buildings allowance (SBA), a tax allowance for commercial property designed to stimulate investment on structures and buildings, in October 2018.
It brought the UK into line with other G7 countries that provide a similar relief and means it is now possible for property developers, owners or investors to claim tax relief at 2% of the expenditure over a 50-year period.
The SBA is applied to expenditure that does not already qualify as ‘plant and machinery’. For example, an office or hotel that costs £10m to construct may also contain £4m worth of plant and machinery assets such as lifts, heating, air conditioning and electrics. The plant and machinery will continue to qualify for capital allowances. However, the £6m incurred on the building structure, such as floors, roof, ceilings or doors, will attract the new SBA, provided the building works commenced on or after 31 October 2018. In this scenario, SBA tax relief worth £120,000 will be provided annually for 50 years. This extra tax relief can then be offset against property rental profits by a property company or against trading profits by a trading company, and applies to individuals, partnerships and companies.
The allowance applies to new-build, extensions and refurbishment expenditure and can be used on some of the purchase price paid for a property, provided it was first constructed after 31 October 2018. However, SBA does not apply to residential property, serviced apartments or nursing homes where care is provided. The legislation itself is quite complex and to add to the current confusion, HMRC has recently introduced more than 90 pages of guidance.
Beyond residential properties, SBA is also not applicable to land costs, planning fees or SDLT. For buildings that are partly used for non-qualifying purposes, such as residential, an apportionment will be required to calculate the expenditure that should be excluded from the SBA.
Under SBA, property owners are obliged to track expenditure to claim the allowance and transfer the relief to new owners when the structure is sold. For instance, if a seller has claimed SBA for 10 years, they can potentially transfer the remaining 40 years of SBA to a new owner. There is no clawback of SBA allowance on sale, but claiming it may result in additional capital gains tax (CGT). This is different to normal capital allowances, which can be structured to avoid extra CGT.
This is a complex allowance and specialist advice could prove helpful. Overall, it is a positive step forward that there is tax relief available for structures and buildings expenditure. However, we hope that in order to further incentivise commercial property investment, future governments will lower the 50-year tax life to a shorter time period.
Trevor d’Sa is tax partner at haysmacintyre