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Structures and buildings allowance: Detail emerges with CGT sting

Structures and buildings allowance: Detail emerges with CGT sting

Steven Bone provides an update to how the structures and buildings allowance will work, now that the draft legislation has been published.  This article appeared on AccountingWEB on 29 March 2019.


Where are we?

In December I outlined the new capital allowance for structures and buildings and noted that the structures and buildings allowance (SBA) was already operational, although few details were available. HMRC has now published draft legislation containing those details, and it hopes to get it this passed by parliament before July.

What SBA does

The SBA gives a 2% flat rate relief over 50 years for the cost of building work on most non-residential buildings and structures. It is not possible to claim SBA for expenditure which qualifies for plant and machinery allowances.
Most of the rules set out in the draft legislation follow the principles outlined in the technical note issued in October 2018, which I covered by my earlier article. What is interesting is what has changed since October.

Residential property 

SBAs are not available for residential property, including furnished holiday lets. During the initial consultation, HMRC officials indicated that they were considering defining ‘residential’ based on a building’s architecture, or physical characteristics. However, having listened to representations there has been a change of plan and the legislation instead lists excluded residential uses. These include: dwelling-houses (defined by case law as providing the facilities required for day-to-day private domestic existence); schools, student and armed forces living accommodation; and homes and institutions (except those where personal care is being provided to people because of their age, disability, substance dependency or mental health).

Evidence requirement 

The draft legislation says that estimates cannot be used and if actual amounts cannot be shown, the taxpayer’s expenditure is treated as nil. This seems harsh because sometimes price is commercially sensitive and estimating is the only practical option. Estimates by specialist quantity surveyors are well-established and reliable and generally accepted by HMRC and the tribunal for most other capital allowances purposes.
If an asset changes hands, allowances pass to the new owner who may claim 2% of the original cost for each year of ownership. However, it is now clear that the new owner will only be able to claim if it satisfies an ‘allowance statement requirement’.  This means getting a written statement from the previous owner of:
The last condition is concerning because it appears to allow HMRC to ask for anything (within reason) and it is impossible to predict in advance what HMRC might want. The taxpayer may challenge HMRC’s requests but disagreements might ultimately need to be decided by the first tier tribunal.

Periods of disuse 

The original plan was that SBAs would stop being given during periods of temporary disuse.  However, HMRC has accepted that in practice record-keeping and calculations could be complicated, particularly for properties with multiple tenants like shopping centres. So, this requirement has been dropped.

Termination of leases

It was intended that on the expiry or termination of a lease, entitlement to SBAs would pass to the landlord. This was unfair because despite paying for the works, the tenant would no longer get relief for its expenditure (even if it took on a further lease), and the landlord would inherit a windfall despite not having spent any money.
This idea has now been softened. Instead, a lease will be treated as continuing for SBA purposes if it is renewed, extended or replaced and the tenant will keep the benefit of the SBAs unless they receive a payment from the landlord or a new tenant.

Insignificant use

Where a property has some areas which qualify (eg, commercial) and some which do not (eg, residential), then an appropriate proportion of the costs will qualify for SBA. However, a building or structure will not be in qualifying use at all if the qualifying purpose (ie business use) is ‘insignificant’. This subjective threshold is not defined, except that it must be just and reasonable. The October 2018 guidance indicated that the threshold for insignificant might be 10% or less, but this has not been clarified in the legislation.

Interaction with capital gains

Claiming plant and machinery allowances does not create or increase a capital gain because there is already a potential claw-back through the capital allowances computation.

For SBA there is no claw-back through the capital allowances computation. The amount of  SBA claimed will increase the taxable capital gain as it is deducted from the allowable cost, so there is potentially a full or partial claw-back of relief given.
If a property is demolished, it was originally proposed that the owner would continue to claim ‘shadow’ capital allowances’ on the asset which no longer existed. However, demolition is usually a disposal for capital gains purposes and the draft legislation now provides for any unrelieved SBA expenditure to be claimed for capital gains purposes as an allowable deduction from the proceeds received, which will reduce the chargeable gain.

HMRC has asked for feedback on the draft legislation by 24 April 2019, by email to

Tags for this article: capital allowances, structures and buildings allowance

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