Director Gateley Capitus
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New allowances for buildings and structures

14th Dec 2018
Director Gateley Capitus
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Steven Bone outlines rules, as we know them, for the new structures and buildings allowances (SBAs), and the pitfalls to watch out for.

What are SBAs?

An unexpected announcement in the 2018 Budget was the creation of a new type of capital allowance called structures and buildings allowances (SBAs). This gives 2% flat rate relief over 50 years for building work on most non-residential buildings and structures, either for own-occupation or investment.

It has long been a frustration of businesses that most capital expenditure on commercial premises didn’t benefit from any tax relief because the assets were not ‘machinery’ or ‘plant’ under tax law. The SBAs address those tax nothings and bring the UK more into line with its main competitor nations, which have had more generous tax depreciation rules.

Is the SBA a reincarnated IBA?

At first glance, SBAs look like the government has reinstated an adapted version of the industrial buildings allowances (IBAs) rules which were abolished from 2011. However, there are some key differences.

One is the absence of balancing adjustments. Until it was announced in 2007 that IBAs were being abolished, the IBA rules had always worked on the basis that if a building was sold within its 25-year IBA life, all of the capital allowances claimed by the seller were clawed-back and passed to the buyer to be written-off over whatever years remained of the 25-year tax life. From 2007 this changed, in that that there was no claw-back from a seller and the buyer just inherited the tax written-down value that remained (called the ‘residue of expenditure’).

SBAs will work like post-2007 IBAs, with a sting in the tail. As there is no potential claw-back mechanism through the capital allowances computation, claiming SBAs will reduce the taxpayer’s base cost for capital gains purposes. In other words, SBAs are a timing benefit, rather than an absolute tax saving, as the government effectively lends the business tax relief until the asset is sold at a profit. Remember the adjustment for inflation (indexation allowance) was frozen at 31 December 2017.  

Few details

Unhelpfully the Finance Bill 2019 listed only the key attributes of the SBA already outlined in the HMRC technical note and stated that the details would be provided for by regulations.

The government said it will issue a technical consultation, but neither the consultation nor the draft regulations have been published, although, it has invited views on aspects of the SBA presented in the technical note. So, although the SBA is already in force (from 29 October 2018), many details remain sketchy.

Who can claim the SBAs?

The relief is understood to be available for all business forms, including companies, sole traders and partnerships. SBAs will work on a ‘use it or lose it’ principle: if allowances are not taken in a year, they will be lost because there is no deferral to later years, but they can augment a tax loss which can be used in the normal way.

What can be claimed? 

SBA claims will be based on the original construction cost of the qualifying structure or building, and there is no minimum spend level. But if an asset is bought new from a developer, and the developer does not disclose its (usually commercially-sensitive) construction cost, then a valuation will be needed to strip out an appropriate proportion for the land.

SBA claims can only be made when the structure or building is brought into use. Each separate structure, building or tranche of expenditure (eg later additions) has its own 50-year tax life, so the qualifying expenditure will need to be recorded, claimed and written-off over that period.

When must expenditure be incurred?

SBAs are available for written building contracts entered into from the Budget date of 29th October 2018. This means that some taxpayers will be unlucky and miss out on the relief for recent or current building works, either because preparatory works had started before the relevant date, or the builder had already been appointed (even though no physical activity started until after the effective date). 

Expenditure to acquire land or planning permission will not be eligible. However, the full range of building works will qualify, including new-builds, extensions, renovations, conversion/ alteration projects and ad hoc additions. This will include preparatory works necessary and ‘explicitly linked’ to the construction, such as demolition, site clearance and the alteration of land for construction.

What is not included?

Any costs which qualify for the 100% annual investment allowance (AIA) for plant and machinery won’t be available for an SBAs claim. Indeed, the Budget guidance seems to indicate that it will not be possible to claim SBAs for any plant or machinery. Therefore, it will be essential to claim plant and machinery allowances to the fullest extent possible, including for fixtures and ‘integral features’ in buildings. Those items plant and machinery will continue to qualify for the AIA, and benefit from the increased cap to £1m for 2019 and 2020.

Most structures and buildings that were previously non-qualifying for capital allowances should qualify for SBAs, except for ‘dwellings’. These are defined widely as ‘buildings primarily intended or used for long-term residence’. Also prescribed ‘holiday or overnight accommodation’ won’t qualify for SBAs, which seems to rule out furnished holiday lettings.

The dwellings restriction will cover home-offices (presumably including outbuildings such as garages and sheds) and the residential parts of mixed residential/ commercial developments. No SBAs will be available at all if the residential parts are more than 10% of the total. If qualifying use changes to a dwelling, SBAs will stop.


The SBA rules are already in operation and the substantive legislation is awaited with interest. Advisers need this urgently so they can reach an informed view of how the rules should actually work in practice, rather than relying on Budget guidance and informed guesswork.

Replies (1)

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By lh3f9764bg1g
17th Dec 2018 10:57

And I thought that ABA was pathetic . . . . . . .
What an incentive to encourage investment!

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