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28 July 2019

Tax News: HMRC RELEASE DRAFT GUIDANCE ON STRUCTURES & BUILDINGS ALLOWANCE (SBA)

In last year’s Budget, the Chancellor announced the introduction of a new capital allowance for new commercial structures and buildings, known as the SBA.

Some readers might remember Industrial Buildings Allowance (IBA) and Agricultural Buildings Allowance (ABA) which gave tax relief on commercial buildings, but were phased out back in 2011.

Late last year a new 2% per annum Capital Allowance was announced for expenditure on new non-residential buildings.

While the new measure takes 50 years to give full tax relief on building works, it at least gives some tax relief for expenditure that wasn’t generating any tax savings previously.

Capital allowances remain available for integral features and fittings within a building, and we continue to encourage clients carrying out building works to ensure they are claiming this valuable relief, which can usually be accelerated through use of the Annual Investment Allowance, which gives more upfront tax relief on qualifying items, such as heating and water systems etc.

The SBA will be only be available on the costs of physically constructing the new commercial structure or building. It will also apply to new property conversions or renovations. But it will not usually apply to dwelling houses and other residential property.In all cases the construction contract must be entered into on or after 29 October 2018 (Budget Day). Ongoing construction costs on projects that started before this date will not qualify for SBA.

An SBA claim cannot be made until the property is first brought into use in the building.

Unlike other capital allowances, when the property is sold there is no balancing adjustment. Instead the purchaser of the property takes over the allowances for the remainder of the 50 year period.

Further rules will apply where a property stops being used in the business, is demolished, or leased out for a lease term of more than 35 years.This draft legislation is expected to go through parliament later this year, following a further consultation period.

For further advice on this matter, please contact me.

Key Facts:           

  1. Construction work on commercial properties is now eligible for a 2% SBA
  2. New property conversions and renovations will also qualify for the SBA
  3. It applies to construction works commencing on/after 29 October 2018
  4. Capital allowances for integral features and fittings remain available, as previously
  5. No SBA balancing adjustment will arise when the property is sold; it passes to the purchaser

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