The 2018 Budget saw the introduction of a new Structures and Buildings Allowance (SBA). The new allowance is available for contracts entered into after 29 October 2018 and allowed for an annual 3% (updated on 1 April 2020 and was previously 2%) tax relief on qualifying costs.
Who do the new tax relief rules apply to?
As always there are many details within the rules but in essence, tax relief applies to:
- qualifying costs incurred on
- qualifying non-residential structures and buildings
- used for a qualifying activity
Who can claim Structures and Buildings Allowance (SBA)?
Businesses can claim the SBA on the following expenditure:
- The costs of physically constructing the structure or building
- Demolition or land alteration costs necessary for the construction
- Direct costs required to bring the asset into existence
Which buildings and structures qualify for SBA?
Structures and buildings include offices, retail and wholesale premises, walls, bridges, tunnels, factories and warehouses. Premises used as hotels and care house will also qualify for the SBA. These can be in the UK or overseas, to the extent it’s in use by a business for qualifying activities and the activities are within the charge to UK tax.
This relief rose to 3% per annum on 1 April 2020 and whilst any increase in tax relief is a positive and the SBA can certainly provide cash flow advantages to businesses carrying out construction projects, the relief itself as currently drafted is not as generous as was originally thought, with an effective claw back on a future property sale. This means that it may or may not be worth claiming, depending on each companies circumstances.
The plant and machinery allowances are far more generous, particularly with the Annual Investment Allowance set at £1m until the 1 January 2022. Whilst it may appear that many costs of a construction project will not qualify for plant and machinery allowances, it is certainly worth investigating as the rules are detailed and may apply to more costs than expected.
With this in mind, we suggest that our clients speak to us before they undertake such a project to make sure they are claiming as many allowances as possible.