12th November 2019
In his 2018 Budget, the then Chancellor Philip Hammond announced his intention to introduce “a permanent tax relief for new non-residential structures and buildings” with a view to “better align the tax and accounting treatment of these assets.” As the subsequent briefing note commented: “Businesses factor future capital allowances into their investment decisions, and the SBA will improve the business case for new investments in structures and buildings.”
In essence, the new allowance enables businesses to claim a 2% tax relief deduction in respect of qualifying property costs for up to fifty years. Although it did not pass formally into law until 5 July 2019, the Structures and Buildings allowance applies to contracts signed on or after 29 October 2018.
However, there are a number of caveats and the HMRC briefing note issued in August 2019 warns that the allowance may not be suitable in all cases. It is therefore vital that businesses considering claiming the allowance first take advice from their accountant. That aside, what are the key considerations for businesses looking to claim the new Structures and Buildings Allowance?
Qualifying activity: The structure must be used for a qualifying activity which is taxable in the UK. Qualifying activities include trade, professions and vocations, mining or quarrying, and managing the investments of a company. Property businesses also qualify but only if the property is let for non-residential purposes. This non-residential stipulation is worth noting as the allowance will no longer apply if at any time the property comes into residential use.
Purchase or renovation: Businesses making a claim must have paid some or all of the costs towards the purchase, construction or renovation of the property. The way in which the total claim is calculated varies depending on whether the business claiming has built or renovated the structure themselves, has bought the structure from a developer, or has purchased the property from a non-developer. Leased property is also treated differently depending on whether the lease is greater or lesser than 35 years.
Allowable costs: Building costs including design, site preparation, and construction are claimable. However, planning permission and legal costs are excluded as is the cost of landscaping and any items which may otherwise qualify as plant and machinery or fixtures and fittings.
Allowance statement: The claim has to be supported by an allowance statement. This includes information which identifies the structure, sets out the total qualifying costs and identifies the date that the structure came into use. The statement is drawn up by the first business to claim the allowance in respect of the structure and is passed on if the building is sold in order that the purchaser can start to claim the allowance.
Thompson Jenner Partner Jon Westley welcomed the introduction of the allowance as “being of potential benefit for those businesses looking to invest in structures and buildings”. However, he went on to add a note of caution to the effect that “care needs to be taken to make sure that you are aware of the full tax impact. Always speak to us before making any decisions.”
If you would like to find out more about Structures and Buildings Allowance or meet to discuss the business tax services which we are able to provide, please contact Jon Westley or one of our Partners on 01392 258553 or 01395 279521 to arrange a free initial meeting.