Structures and Buildings Allowance (“SBA”) Print

In the Budget on 29 October 2018 the Chancellor announced a new relief in respect of the construction costs for new structures and buildings intended for commercial use. The policy objective states that this is to support business investment in constructing new structures and buildings including necessary preparatory costs, and the improvement of existing ones, as well as improving the international competitiveness of the UK’s capital allowances system.

For those with long memories, this is not dissimilar to the former Industrial Buildings Allowances, although simplified, and updated to include a wider range of commercial structures.

SBA is limited to the costs of construction, where the contracts are entered into on or after 29 October 2018. In addition to the direct costs of constructing the structure or building, allowable costs include the costs of demolition or land alterations necessary for the construction of the structure or building. However, the cost of the underlying land, and the costs of obtaining planning permission are not claimable as SBA.

SBA is available in respect of capital expenditure on structures and buildings brought into use for the following qualifying activities:

  • A trade, including a ring-fence trade in the oil and gas sector;
  • A profession or vocation;
  • A UK or overseas property business that is an “ordinary” business for the purposes of the Capital Allowances Act 2001;
  • A concern listed in Section 12 (4) ITTOIA 2005, or Section 39 (4) of CTA 2009 (mines, transport undertakings etc.)
  • Managing the investments of a company with investment business, to the extent that any profits or gains from the activity are chargeable to tax.

The structures or buildings may be situated in the UK, or overseas. Overseas structures or buildings will qualify for SBA where it is in use by the person claiming the relief for a qualifying activity and to the extent that the profits of the activity are chargeable to tax in the UK.

SBA are claimable in respect of new structures and buildings, including:

  • Offices;
  • Retail and wholesale premises;
  • Walls;
  • Bridges;
  • Tunnels;
  • Factories and warehouses;
  • Hotels and care homes

Expenditure on the following types of residential property and other buildings do not qualify for SBA.

  • Dwelling houses,
  • Residential accommodation for school pupils
  • Student accommodation
  • Residential accommodation for members of the armed forces
  • A home or other institution providing residential accommodation (for children or adults) except where the accommodation is provided with personal care for persons in need of personal care by reason of old age, disability, past or present dependence on alcohol or drugs or past or present mental disorder
  • Prisons and similar establishments.
  • A building or structure that is situated on land that is, or is intended to be, occupied or enjoyed with a building or structure that is in residential use as a garden or grounds is, for the purposes of this relief to be treated as in residential use.
  • In addition, relief is not claimable for expenditure on workplaces which are an integral part of a dwelling such as an office in the home.

Relief is given at a flat rate and this was initially set at 2% per annum. This was increased to 3% in the Budget on 11 March 2020. This increased rate is available for all contracts for qualifying expenditure providing the contracts or the construction works were entered into on or after 29 October 2018. Businesses which brought structures or buildings into use during the period 29 October 2018 to 1 April 2020 may also claim the additional 1%, but this is claimable at the end of the period of 33+ years. Where the accounting period of the business straddles the April date the rate claimable is apportioned on a daily basis for the periods before and after the April date.

Originally it was intended that the relief would be claimable over a 50-year period, by increasing the rate of SBA to 3% this shortens the time scale to a little over 33 years. Claims to relief can only be made once the structure or building has first come into use. If relief is not claimed for any particular year, it will not be able to be carried forward, and will be lost. HMRC state this is for simplification purposes, so that a consistent amount of relief is available each year over the whole qualifying period.


Smith & Uncle Ltd whose year end is 31 July 2020 incur qualifying expenditure of £120,000 on a structure which came into use during the year. The relief due for the years to 31 July 2020 and 31 July 2021 is as follows:

Period 1 August 2019 to 31 March 2020:

(£120,000 x 244/366) x 2%

Period 1 April 2020 to 31 July 2020

(£120,000 x 122/366) x 3%

SBA due for the year ended 31 July 2020 2,800
SBA due for the year ended 31 July 2021 (£120,000 x 3%) 3,600

Capital expenditure incurred on a structure or building after it has come into use will also qualify for SBA, but as a separate allowance also at the rate of 3% over the next 33 years, (2% up to April 2020) even where that goes beyond the period over which the original expenditure is written down.

In order to be able to claim the SBA, an allowance statement must be prepared. And the person who creates the allowance statement must be able to evidence the amount of qualifying expenditure included in the statement.

The allowance statement must be in writing, and include the following information:

  • Information to identify the building to which it relates
  • The date of the earliest written contract for the construction of the building
  • The amount of qualifying expenditure incurred on its construction or purchase
  • The date the building is first brought into non-residential use.

In the event that further qualifying expenditure is subsequently incurred on the building and an allowance statement is already in existence, the additional qualifying construction costs can be added to the original allowance statement. However, the original expenditure and any further qualifying expense must be clearly identifiable so that the purchaser can claim the balance of the expenditure over the remaining term for each element of the qualifying expenditure.

Where the creator of the allowance statement is the person who constructs the building they must retain evidence of construction expenditure, such as invoices. They will also need to retain documents which support the date of earliest construction contract.

If the creator of the allowance statement has acquired an unused building from someone else, they will need to evidence the method of calculating the qualifying expenditure for the allowance statement. This should probably include the sale and purchase agreement if buying from a developer, a valuation of the underlying land and any other excluded items to arrive at a just and reasonable apportionment.

HMRC do not require routine sight of the allowance statement, but may require it to be produced if they enquire into a tax return.

In the majority of cases, the qualifying expenditure will be restricted to the original construction costs, and the purchaser of a building from a developer may have difficulty in obtaining this information from the vendor as the developer may consider this to be confidential information. However, without an allowance statement, the evidence requirement will not be met, and no allowances can be claimed.

On a disposal of the structure or building there is no balancing adjustment, and the new purchaser will be entitled to claim the balance of the unclaimed annual relief for the remaining part of the 33-year period. Relief for the year in which the disposal takes place will be apportioned between the vendor and purchaser. The vendor should give the allowance statement to the purchaser so that the purchaser can claim the balance of the SBA.

Although there is no balancing adjustment for capital allowances purposes, in calculating the gain, or loss on the disposal of the building, the base cost must be reduced by the SBAs claimed by the seller. Accordingly, and in particular for companies, the SBA is in effect no more than a timing benefit which is recovered when the building is sold. For individuals who are sole traders, in partnership, or members of an LLP, the rate of relief claimable on the SBA could be up to 45% whereas the rate of claw-back under CGT is at 20%.

Where the structure or building that was originally used for a qualifying activity becomes a dwelling, SBAs will no longer be due for the period during which the structure or building is used as a dwelling. If the structure or building subsequently resumes use as a qualifying activity, then the SBA will recommence, but no relief will be given for the period of non-qualifying use.

If the structure or building ceases to be used for a qualifying activity, then relief can be claimed for a further period of up to 2 years. After this, no further relief can be claimed until such time as the structure or building resumes use for a qualifying activity.

If the structure or building is damaged and can no longer be used for a qualifying activity, then relief can be claimed for a further period of up to two years, to allow for reconstruction work to take place. If reconstruction takes longer then SBAs will not be available after the two-year period until the reconstructed structure or building is brought back into use. The two-year period may be extended up to five years where the structure or building substantially no longer exists following extensive damage. The new expenditure on reconstruction will qualify for relief in its own right at the rate of 3% per annum over the next 33 years (2% for any period up to April 2020). Any compensation, or amounts recovered through insurance will be deducted from the reconstruction costs eligible for SBA.

Where the structure or building is demolished and not replaced, SBAs can continue to be claimed on the expenditure for the remainder of the 33 year term of the demolished structure or building.

SBA expenditure will not qualify for AIA. However, integral features included within the structure or building may still be claimed within the AIA allowance, or as part of the Special Rate Pool (see section on Integral features), and any such expenditure must be deducted from the SBA claim.

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