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The Budget 2018: Capital allowances for structures and buildings

The Budget 2018: Capital allowances for structures and buildings
  • United Kingdom
  • Tax planning and consultancy - Budget



A new Structures and Buildings Allowance (“SBA”) for new non-residential structures and buildings has been introduced to improve the UK’s international competitiveness, and so stimulate investment in structures and buildings intended for commercial activity.

Relief will be provided on eligible construction costs pursuant to contracts made on or after 29 October 2018, at an annual rate of two percent on a straight-line basis from when the building first comes into use. The relief will be available to income and corporation taxpayers while the property is used for qualifying activities (trades, property businesses, professions, taxable investment management).

Powers to introduce the SBA will be introduced in Finance Bill 2018-2019, with a technical consultation on draft secondary legislation over the winter.


Structures and buildings include offices, retail and wholesale premises, walls, bridges, tunnels, factories and warehouses (in the UK or elsewhere). Dwellings (including e.g. student accommodation) will not qualify, but the definition of dwelling is to be consulted on. Capital expenditure on renovations or conversions of existing commercial structures or buildings will also qualify (with relief for additional capex calculated separately). Expenditure on land or acquiring rights over land will not qualify for relief. This includes any legal costs and stamp duty, or any costs attributable to the obtaining of planning permissions, including the costs of public inquiries.

Where a business acquires an unused asset that has already been constructed by a developer the qualifying expenditure will be the price paid by the business less any amount relating to land. Where the business itself develops the structure or building, rather than acquires it, the cost of any land preparation necessary for construction will qualify for relief.

If an asset ceases to be used for a qualifying activity, relief can be claimed for a further period of up to two years, with relief continuing to be available once such activity resumes. Such period is extended to five years where the structure or building substantially no longer exists following extensive damage.

Other capital allowances on fixtures will remain unaffected, although SBA expenditure will not qualify for the “Annual Investment Allowance”.


Sale of the asset will not result in a balancing adjustment; instead, the purchaser will take over the remainder of the allowances written down over the remaining part of the 50-year period. Tax-exempt businesses will pass any residue to a successor in title as if they had claimed allowances. Where the seller has not claimed SBAs, the buyer will need to obtain evidence of the time and amount of original capex in order to ascertain the amount of residue to which the buyer is entitled.

On disposal of a structure on which allowances have been claimed, a person’s allowable cost of the asset for capital gains purposes will be reduced by the total amount of relief claimed.


Each of landlord and tenant will ordinarily be able to claim SBAs so long as using the asset for a qualifying activity. Where the lease ends, any remaining tenant SBAs should pass to the landlord.

However, certain lease grants by a landlord will be treated as a part-disposal triggering a transfer of landlord SBAs to the tenant. The proposed rules for determining whether a landlord effectively disposes of the asset for SBA purposes is relatively complex. Broadly, the landlord will be treated as making such a disposal where the term of the lease granted is more than 35 years and the landlord disposes of at least 75% of the tax value of the asset. The tax value is calculated using the chargeable gains part disposal rules and the lease premium rules.

Commencement and Anti-avoidance

SBAs will apply to newly-constructed structures, conversions and renovations where all the contracts (not letters of intent) for the physical construction works of the structure (including any contract for preparatory works) are made in writing and executed on or after 29 October 2018. Where construction is undertaken by an internal workforce, the relief will apply where that physical work commenced on or after 29 October 2018.

Where the contract for preparatory work has been entered into before 29 October 2018, the structure or building will not qualify for SBA. This will be the case even though the remainder of the construction works to complete the structure or building are effected under separate contracts entered into only on or after 29 October 2018. That said, preparatory work may be ignored if, say, no new building is planned at the time of site clearance.

There are to be targeted anti-avoidance rules, including one to disallow relief through the manipulation of contracts already made prior to 29 October 2018.


Please view our dedicated Budget 2018 hub here. It will give you access to our watch list, our contributors and relevant articles and tweets.

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