The 2018 Budget introduced a new Structures and Buildings Allowance (SBA) to allow an annual 2% writing down allowance at a flat rate over a 50 year period on the costs of constructing, renovating or converting new commercial structures and buildings under contracts entered into on or after 29 October 2018.
Essentially, claiming the SBA will allow an annual tax deduction to be obtained on expenditure which in many cases would otherwise have been ineligible for tax relief.
By way of example, a corporate investor incurring expenditure of £25m on the construction of a new commercial property would be eligible to claim an additional annual tax deduction of £500k due to the SBA, resulting in a corporation tax saving of £95k each year.
Care is however needed, if the annual SBA deduction is not claimed it is lost and cannot be carried forward or claimed in a later period. Various administrative requirements will also need to be met in order for commercial property owners to benefit from the relief.
Who can claim?
The relief can be claimed by businesses subject to either income tax or corporation tax which have a right over the land on which the building or structure is constructed and who incur qualifying costs.
Crucially, the relief attaches to the property and so, providing certain conditions are met, can transfer to subsequent owners where the building or structure is sold.
Qualifying costs
The SBA can be claimed on qualifying expenditure on the acquisition, construction or renovation of non-residential properties or structures. The SBA will therefore be available on offices, retail, hotels, leisure and industrial properties.
Expenditure on the acquisition of land, SDLT, landscaping, planning, site remediation and on plant and machinery is specifically excluded. Opportunities to claim the SBA on alterations to land in preparation for construction of a building, as well as on certain professional fees, should however be considered.
Costs incurred on residential properties, or the residential element of mixed-use properties, are specifically excluded from the new relief.
How to claim?
The SBA will be claimed on the business’s tax return. An SBA claim must however be supported by an ‘allowances statement’ for the building or structure on which relief is claimed, setting out details of the property, the dates and amounts of expenditure incurred and the date upon which the property was brought into use.
In practice, care will be needed with the preparation of these statements to ensure that the availability of the relief to property owners and future owners is not prejudiced.
What happens when the building or structure is sold?
Any remaining years of the 50 year period would pass to a new purchaser when the building or structure was sold. The vendor will however need to provide an ‘allowance statement’ to the buyer in order for the allowances to transfer.
Buyers would therefore be well advised to ensure that the availability of the SBA is considered at an early stage in the acquisition process and that the provision of the relevant allowance statement within a prescribed time frame is referenced within the sale and purchase documentation.
The amount of the SBA claimed by the vendor is added to the proceeds of sale when calculating the gain arising on the disposal of the property. Whilst this will in some cases result in additional tax costs being suffered as the SBA claimed is clawed back, property owners should still benefit from the timing benefit of having obtained tax relief earlier.
What should commercial property owners be doing?
Action will be needed to secure the availability of the new relief and to ensure that the SBA is not underclaimed or missed altogether.
Property owners and occupiers planning to incur expenditure on the acquisition or construction of non-residential buildings or structures should consider obtaining advice on the availability of the SBA at an early stage in order to ensure that their ability to make a claim is optimised.
ABOUT THE AUTHOR
Tom is a partner at BHP LLP and a member of the firm’s real estate tax advisory team. He has over 20 years experience helping businesses and their owners to efficiently manage their tax affairs.
BHP’s real estate tax advisory team specialises in helping investors, developers and owner occupiers manage their tax position to mitigate risks and unlock added value from their property assets.
