The Structures And Building Allowance

Introduction

The Structures and Buildings Allowance is a new tax relief for the costs of constructing commercial buildings and structures. Commercial buildings include offices, shops and factories; commercial structures include bridges, tunnels, dams and docks. The building or structure in question can be in the UK or overseas. The allowance is given at a rate of 2% of the cost of construction. This is for each year after the building has been brought into use spread over a 50-year period. Entitlement to the allowance is lost if the building is demolished but not if it simply ceases to be in use. The relief is only for costs incurred under a contract entered into after 28 October 2018.

How do capital allowances work?

The UK tax system does not generally allow tax relief for capital assets unless the asset comes within a defined category. If the capital asset is within one of these defined categories, then the cost can qualify for a capital allowance. These allowances can be offset against business profits as well as other profits and so reduce the tax payable on these profits. By far the most important category of asset is the one for plant and machinery. Historically, there were also allowances for constructing industrial buildings and agricultural buildings. That was until 2008, when these allowances were abolished. However, capital allowances have never been available for the cost of acquiring the land element of a property. This new relief for structures and buildings is effectively something of a revival of the old allowances for industrial and agricultural buildings.

What costs get tax relief?

As with the old allowances, the relief is targeted at the cost of the construction of the building or structure.

This includes:

i. the renovation of the building;

ii. the conversion of the building; and

iii. incidental repairs in the course of the renovation or conversion.

Renovation, conversion and incidental expenditure after 28 October 2018 is eligible even if the building itself was originally constructed before then.

However, the relief does not cover the costs of:

i. acquiring the land;

ii. obtaining planning permission for the building or structure; or

iii. reclaiming, remediating or landscaping the land.

Somewhat subtly, preparing the land as a site for construction can qualify for the new allowance. Unlike the old relief, it is not possible to choose between claiming the new allowance or plant and machinery allowances on the cost of...