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27 Nov 2019

Structures and buildings allowances


What are SBAs? 

Structures and Buildings Allowances (“SBAs”) are a new form of capital allowance for capital expenditure incurred on or after 29 October 2018 on the construction, renovation or conversion of buildings and structures for non-residential use.

Where the conditions for claiming SBAs are met, qualifying expenditure is relieved at a rate of 2 per cent. per annum on a straight line basis, over a period of 50 years. As with other capital allowances, relief is given by way of a deduction in calculating taxable profits of the relevant business.

SBAs have to be claimed in a tax return for a chargeable period. There is no ability to roll unclaimed SBAs forward in a pool in order to claim them in a later period. If the 2 per cent relief attributable to a particular chargeable period is not claimed for that period, it is simply lost.

A person can only claim SBAs if they hold a relevant interest in the building or structure in question. Where a person who has incurred qualifying expenditure transfers the relevant interest in a building the entitlement to SBAs passes to the new owner for the remainder of the original 50 year period (as long as certain conditions are met).

A transfer of a relevant interest in a building or structure does not give rise to any balancing allowances or balancing charges for the transferor. However, if the expenditure that qualified for SBAs forms part of the transferor’s capital gains tax base cost in the building or structure, then the amount of SBAs actually claimed by the transferor is added to the disposal proceeds when calculating any capital gain or loss on its disposal. In effect, this is a form of clawback.

Some of the key elements of the SBA regime are highlighted below.

Qualifying expenditure 

  • SBAs are only available in respect of qualifying expenditure incurred in relation to a building or structure on or after 29 October 2018. Where any works contracts are entered into before 29 October 2018 in relation to a construction project, this can prevent all of the expenditure on that project from qualifying for SBAs. It will therefore be important to understand precisely when relevant construction 
    arrangements were entered into. 
  • Qualifying expenditure includes the arm’s length amount of capital expenditure incurred on construction, conversion or renovation of a building or structure. This extends to professional fees on design and construction, site preparation costs and capital fit out works (to the extent they are not otherwise tax deductible).
  • It does not include the cost of acquiring the land itself, the costs of obtaining planning permission, land remediation, drainage or landscaping costs, SDLT or legal costs. Nor does it include abortive expenditure on buildings that are not ultimately constructed.
  • There are special rules dealing with situations where newly constructed buildings are acquired from developers. In these cases, because the developer’s costs will have been revenue in nature rather than capital expenditure, the purchaser is instead allowed to treat a proportion of the purchase price it pays (so far as attributable to the interest in the building, rather than the land itself) as if it were qualifying expenditure on construction.
  • As would be expected, expenditure which qualifies for other allowances will not also qualify for SBAs and there are provisions dealing with expenditure funded by contributions from third parties.

Non-residential use 

  • The first use of the building or structure after the qualifying expenditure is incurred must have been non-residential. Otherwise, no SBAs are available in respect of that expenditure, even if the building is subsequently brought into non-residential use.
  • Assuming that the first use of the building or structure was non-residential, a subsequent period of residential use will switch off entitlement to SBAs, but only for the period of residential use. If the building then reverts to commercial use, SBAs should be available again for the remainder of the original 50 year claim period.
  • “Residential use” includes use as a dwelling house, student accommodation and certain other residential homes or institutions that do not provide personal care required by reason of old age or specified medical conditions.

Qualifying activity 

  • The person claiming the SBA must carry on a “qualifying activity” for the chargeable period in which the claim is made, and must have brought the building or structure into use for the purposes of that qualifying activity.
  • Qualifying activities include the following, in each case to the extent within the charge to UK tax: a trade; a UK or overseas property rental business (excluding a furnished holiday lettings business); a profession or vocation; certain mines, quarries and similar concerns; and managing the investments of a company with investment business.


As noted above, SBAs essentially attach to the particular land interest that was held by the person who originally incurred the qualifying expenditure in question. When the relevant interest is transferred, the entitlement to SBAs in respect of that expenditure passes with it. There are some special rules to identify the relevant interest where leases are involved. In particular:

  • The grant of a lease is not generally treated as a disposal of the landlord’s relevant interest unless the term of the lease is 35 years or longer and a significant capital sum is paid for the grant of the lease.  
  • A lease that is renewed, extended or replaced is treated as continuing as the same relevant interest, such that the tenant’s SBA entitlement is not lost.  
  • Similarly, if a lease is terminated but the tenant remains in possession with the consent of the landlord, the lease (and therefore the relevant interest) is generally treated as continuing for as long as the tenant continues in possession. 
  • There are also provisions dealing with situations where capital sums are paid in connection with a termination or novation of a lease, and with situations where a tenant acquires the landlord’s interest such that the property titles merge. 

Evidence and the Allowance Statement Requirement 

In order to be able to claim SBAs, the amount of qualifying expenditure needs to be evidenced. It will therefore be important to keep records detailing the qualifying expenditure, including relevant contracts and invoices.

In addition to that general requirement for evidence, there is also the so-called “allowance statement requirement”. If this is not met, a taxpayer’s qualifying expenditure is deemed to be nil and no SBAs are available.

The allowance statement requirement is that, for each relevant item of qualifying expenditure, the person making the SBA claim must hold a written statement which identifies: 

  • the building or structure to which it relates; 
  • the date of the earliest written contract for the relevant construction of the building or structure;  
  • the amount of qualifying expenditure incurred on the construction or purchase of the building or structure; and 
  • the date on which the building or structure is first brought into non-residential use.  

An owner of a building claiming SBAs for qualifying expenditure that it incurred itself will draw up its own allowance statement for that expenditure. But if the current owner wants to claim SBAs by reference to expenditure incurred by previous owners, then it will need to obtain an allowance statement made by one of those previous owners. As SBAs are available over a period of 50 years from the date of each item of expenditure, this may require allowance statements to be passed through a chain of several different owners.

Allowance statements will need to be kept as part of a business’ tax records if it claims SBAs. Purchasers will expect these to be delivered on completion of property acquisitions and should ask for appropriate contractual protections from the seller.


The introduction of SBAs was intended to stimulate investment in construction of new commercial buildings and the Government has recently stated that it intends to increase the rate to 3 per cent. per annum to provide a further boost. However, although the new relief is generally to be welcomed, it has to be questioned whether it is significant enough to really influence decisions on new construction spending. At the same time as SBAs were introduced, it was also announced that the rate of capital allowances for 
expenditure on thermal insulation and integral features was being reduced by 2 per cent. (from 8 per cent to 6 per cent) and that enhanced capital allowances for energy efficient plant and machinery were to be abolished. So to some extent it is a case of giving with one hand while taking with the other. The fact that the benefit of SBA claims can be clawed back through the capital gains calculation on a disposal of a building may also mean that there is less incentive for some owners to document and claim SBA entitlements.

One aspect of the rules that should not be overlooked is the importance of good record-keeping. Each item of construction expenditure needs to be apportioned between those elements that qualify for SBAs and those that do not. Similarly, where a building is used for more than one activity (for example partly for a trade and partly for a property rental business), the qualifying expenditure needs to be apportioned between each of those uses. Although most kinds of capital expenditure on a building will now qualify for some form of allowance, the SBA does add another level of compliance for businesses in terms of allocating expenditure appropriately between the different relieving regimes and keeping track of the various items over the life of the building. It will be very easy for valuable SBAs to be lost as a result of poor processes and paper work - a failure to make or obtain a written allowance statement being an obvious example.

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