The following post is provided by one of our Partner firms The Capital Allowance Review Service (CARS). It has been edited for the benefit of professional readers. See more about the services offered to practitioners on CARS’ Partner Page. The article that follows covers the structures and buildings allowance and was posted to CARS’ website December 2018.
As even failing businesses have come to understand, allowances and tax credits allow a business to survive even when they’re not profitable. By claiming the credits the government allows for the investments you’ve made in building commercial or business related structures, you can save on costs. With structures and buildings allowance, you get tax relief to grow and expand your business, even helping to fund building new structures later on.
Here is everything you need to know when putting together your claim for structures and building allowance.
Understanding Your Qualifications
The structures and buildings allowance (or SBA) is one of the most significant changes in capital allowances in many years. Since the end of the industrial buildings allowance era, there has not been anything significant that could replace that allowance. The structures and buildings allowance is acting as a direct replacement for this previous allowance in several regards.
New construction on non-residential buildings is the primary qualifier for this kind of allowance. The allowance is offered over the course of 50 years at an annual rate of 2%. It’s available for new properties that meet a specific kind of criteria, with the land element being ineligible for this allowance.
Assets such as plant, machinery, fixtures and fittings are not eligible for SBA, nor are integral features. These items continue to qualify for capital allowances, including the Annual Investment Allowance (AIA) and will continue to be calculated separately.
Get Prepared Now
This relief and allowance program has come into effect for projects that commence after the end of October 2018. Take the time to research the measure because the provisions for commencement are complex and unique. There are anti-avoidance measures that keep taxpayers from manipulation of the relief.
If you’re thinking of moving a few statements in your contract around to fall within the window for relief, pump the brakes! You could end up in trouble or disqualifying yourself from future relief.
If you entered into your contract before October 29, 2018, including any preparatory work, you might be disqualified. The physical construction works need to be agreed upon after that date if you want to ensure that you can qualify for this relief.
The relief becomes available from when the building or structure is bought into use. There are further rules to consider if the building ceases to be used for a period of time.
The Features of Relief
If you want to see relief from this allowance, you need to get to know what the main features are. If you haven’t signed off on your next contract yet, you can consider this allowance before you start a new project.
Be aware that new commercial structures and buildings can fall under the terms of this relief. If you’re creating a new conversion or doing some renovations, you might be able to claim SBA.
The UK construction industry is seeing some huge changes. If you’re building in the UK or overseas, you can still potentially make a claim as long as you pay UK taxes.
Your 2% over a 50-year period will be limited to what it costs you to actually build the structure or the building. However, these costs can extend to demolition, land alterations, and any direct costs that create an asset in the first place. Whatever it takes to bring the asset into existence, that could apply.
The Limitations of Relief
When you want to make your claims, you need to be aware that there are some limitations to this relief.
A claim begins from when the building or structure is bought into use.
The rights over your land or any land costs aren’t eligible for relief. The costs that you pay to get planning permission aren’t covered either.
You may be asked to show documentation of your interest in the land you have. If there’s no purchase over the land that your building is constructed on, you might not able to claim relief.
Don’t expect residential dwellings to qualify for this relief. Even if you’re holding a mixed-use property where most of the structure is used as commercial, the part that is residential is prohibited and an apportionment will apply.
Renovating or converting a structure or building makes things complicated. If you’re doing so to make it a qualifying asset under these terms, you may end up qualifying for a separate relief.
If you’re unsure about the kind of relief that you’re going to qualify for, speak to us!
Structures and Buildings Allowance Brings Growth to Cities
With the help of the structures and building allowance, investing in cities has never been easier. Former booming urban environments can once again come to life with this kind of investment.
This allowance allows a lucrative return on investment. It encourages growth and risk-taking where it matters in the commercial sector. A growing number of small-scale investors see this allowance as an opportunity to get involved in the construction industry and invest in new ways.
Need help with a client Capital Allowance claim?
See more about the services offered to practitioners on CARS’ Partner Page.