Use or lose the structures and buildings allowance
3rd May 2019
Posted in Articles, Capital Allowances, Corporation Tax, Featured Articles, Property Tax by Forbes Dawson
The issue
A longstanding frustration of businesses is that most capital expenditure on commercial buildings does not benefit from capital allowances on the basis that they do not qualify as plant or machinery. The announcement of the new structures and buildings allowance (SBA) in the last Budget was therefore well-received, although at the time there was uncertainty surrounding its parameters and how it would operate. The government finally published draft legislation last month which sought to address many of these questions (albeit consultations are still currently ongoing).
How does it work?
The allowance (which is already in force) will be available to companies as well as unincorporated businesses incurring qualifying expenditure on commercial buildings or structures used in the trade. Only expenditure that is incurred on or after 29 October 2018 will qualify. It should be noted that buildings/structures on which contracts were entered into before this date will not qualify, despite the fact that construction might not have started or payment might not have been made at that date.
Broadly, any expenditure on construction that cannot be expensed against trading profits/income or claimed as a capital allowance will qualify for the SBA.
The allowance is incorporated into the existing capital allowances regime (which, as mentioned above, currently excludes buildings and structures). The relief is given by writing down 2% of the qualifying expenditure over a fixed 50 year period. However unlike plant and machinery which accounts for acquisitions and disposals by way of balancing allowances and charges, there is no such mechanism here. Instead, on an acquisition of a structure on which the SBA has been claimed, the purchaser will inherit the remaining entitlement.
Rather generously, the demolition of any structure/building will result in a deduction for the remainder of the unclaimed SBA.
The SBA has to be claimed in the accounting periods when the building is used in the business, and works like capital allowances in the way that it can increase a tax loss which can then be carried forward. Unfortunately, if the allowance is not claimed then it will be lost and there is no option to defer it to later years. Therefore care should be taken to ensure that this valuable new relief is not missed.
Sting in the tail
Although this new relief will be broadly welcome, at the end of the day it is nothing more than a tax deferral. This is because any base cost for capital gains tax purposes will be restricted by any relief taken under this regime. In this way the benefits of any relief will be clawed back in the event of a sale.
