Structures and Buildings Allowance – What You Need To Know

At McDade Roberts accountants, it is our job to understand all the latest changes in tax law so we can help our clients. Draft legislation detailing a new capital allowance for new non-residential structures and buildings has been announced so read on to find out more.

This change, announced at Budget 2018, provides capital allowances for expenditure incurred on the construction of a building or structure in qualifying use. The annual rate of the allowance is 2%.

HMRC have now published the draft rules for consultation which you can see summarised below.

Start Date

The new rules apply if the construction of a building or structure began on or after 29 October 2018. The construction of a building or structure is treated as beginning before 29 October 2018 if:

  • Any contract for the construction of the building or structure is entered into before that date; or
  • Any contract for the construction of the building or structure is entered into on or after that date but a connected preparatory contract is entered into before that date.

What Qualifies?

Broadly, three things are required in order for costs to qualify:

  • Qualifying expenditure is incurred on construction or acquisition
  • The building or structure is not in residential use
  • There is a qualifying activity (see below)

The Allowance

A person is entitled to the allowance for a given period if they hold relevant interest in the building or structure.

A “relevant interest” refers to the interest in the building when the qualifying costs are incurred. A relevant interest can be either freehold or leasehold but please note that special rules may apply to leases of 35 years and over.

In simple terms, what does this mean? The basic rule is that the allowance for a chargeable period of one year is 2% of the qualifying expenditure, for a period of up to 50 years. The allowance ends if the building or structure is brought into residential use or demolished.

What Qualifies As Expenditure?

If capital expenditure is incurred on the construction of a building or structure and your relevant interest in the building or structure has not been sold or, if it has been sold, it was only after the building or structure was brought into qualifying use, the capital expenditure qualifies for the relief. Certain site preparation costs are also allowable.

There are special rules if the building is sold before the building is used and further rules for sales by developers so please contact us for more in depth advice.

What is Excluded?

Expenditure incurred on the acquisition of land or rights in or over land (for example, fees, stamp duty and other incidental costs attributable to the acquisition) or on altering land is excluded.

Expenditure incurred in connection with seeking planning permission (including fees and related costs) are excluded. Expenditure on the provision of plant or machinery is also excluded.

Qualifying Activities

A qualifying activity is a trade, an ordinary UK or overseas property business, a profession or vocation.

A building or structure is in 'qualifying use' if it is in significant non-residential use for the purposes of a qualifying activity carried out by the person who has the relevant interest in the building or structure.

Evidence of Qualifying Expenditure

One of the important parts of the new rules is that a person who is entitled to an allowance will, before they first make a claim, have to:

  • Make a written statement containing the date of the earliest written contract for the construction of the building or structure
  • Record the amount of qualifying expenditure incurred on its construction or purchase
  • Record the date on which the building or structure is first brought into non-residential use and such other supplementary information as required HMRC

Need help?

As always, in the world of tax, the rules are complex and this blog provides only a broad overview. Please contact McDade Roberts to discuss specific cases in more detail. We offer friendly advice and the first consultation is always free.