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Businesses spending money on property structures can obtain tax relief.

A very common query that the ACCA Technical Advisory team answers relates to the availability or non-availability of capital allowances where a business spends money on the structure of a property. While the changes will mean the non-availability almost disappears there will still be the difference in tax treatment for integral features to property and the actual structural asset.

What is changing?

The Chancellor announced on 29 October 2018 the introduction of a new capital allowance for new non-residential structures and buildings (SBA). This was designed to address the tax gap and will be good news for businesses. A summary of the core tax relief and timing is:

  1. relief will be given at a flat rate of 2% over a 50-year period
  2. relief will be available for new commercial structures and buildings, including costs for new conversions or renovations
  3. relief is available for UK and overseas structures and buildings, where the business is within the charge to UK tax
  4. relief will be limited to the costs of physically constructing the structure or building including costs of demolition or land alterations necessary for construction and direct costs required to bring the asset into existence
  5. relief is available for eligible expenditure incurred where all the contracts for the physical construction works were entered into on or after 29 October 2018
  6. claims can only be made from when a structure or building first comes into use
  7. land costs or rights over land will not be eligible for relief, nor will the costs of obtaining planning permission
  8. the claimant must have an interest in the land on which the structure or building is constructed
  9. dwelling houses will not qualify, nor any part of a building used as a dwelling where the remainder of the building is commercial
  10. sale of the asset will not result in a balancing adjustment – instead, the purchaser takes over the remainder of the allowances written down over the remaining part of the 50-year period
  11. expenditure on integral features and fittings of a structure or building that are currently allowable as expenditure on plant and machinery will continue to qualify for writing down allowances for plant and machinery including the Annual Investment Allowance (AIA) up to its annual limit
  12. SBA expenditure will not qualify for the AIA
  13. where a structure or building is renovated or converted so that it becomes a qualifying asset, the expenditure will qualify for a separate 2% relief over the next 50 years.

Progress of the legislation

On 29 October 2018 a technical note was issued outlining the effects of the proposed legislation. Note that the above summary remains the same as per the original technical note.

A number of meetings with interested groups were held which resulted in certain changes to the draft legislation and an introductory note to draft secondary legislation was issued on 13 March 2019.

The government invited comment by 24 April 2019 on the detailed draft secondary legislation. An overall response to consultation responses will be published in May 2019.

The final, published version of this legislation will be in the format of a Statutory Instrument. Once in force, the legislation will apply to eligible costs incurred on or after 29 October 2018 in line with the commencement provisions

Further information

Full details of the measures and the introductory note to draft secondary legislation (13 March 2019) are available here.

The original technical note (29 October 2018) is available here.

Article from ACCA In Practice