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Structures and buildings allowances: the final regulations

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On 5 July 2019, HMRC published the Capital Allowances (Structures and Buildings Allowances) Regulations, SI 2019/1087. We still await HMRC guidance to clarify certain challenging sections of the legislation.

It is important that businesses understand the likely cash tax impact that SBAs will have, and implement a suitable data and analysis process

Some key points regarding SBAs are as follows:

  • SBAs are available for qualifying expenditure on structural and building assets. Structures or building used for residential purposes and land are ineligible for SBAs.
  • Tax relief on qualifying expenditure is available at 2% per annum on a straight line basis, i.e. tax relief will be available over 50 years.
  • SBAs will impact both freeholders and leaseholders of property. SBAs will need to be considered as part of fit-out, refurbishment, development and construction projects as well as on the sale or acquisition of buildings.
  • SBAs are not available in respect of expenditure on qualifying plant or machinery, which will instead remain eligible for plant and machinery allowances. 

Changes made to the draft regulations now confirmed in the final legislation include:

  • Removing the concept of the ‘connected preparatory contract’ in determining whether construction of the building or structure commenced before 29 October 2018.
  • Clarity on the information required as part of an allowance statement, i.e. the mechanism by which SBAs can be claimed by the current and future owners. Additionally, it will now be possible to meet the allowances statement requirement by acquiring this from any previous owner.
  • Allowing qualifying expenditure incurred on different days to be treated as incurred on a later single day, for instance, the first day of the following accounting period. This should help ease the administrative burden the new legislation requires.
  • Originally, it was proposed that any capital expenditure incurred by a lessee in respect of a lease with fewer than 50 years to run, would not be available for relief to lessees following a lease’s expiration and the remainder of the SBA due could be claimed by the landlord. This is now no longer the case as new legislation will provide relief for capital expenditure incurred by the lessee, so that any capital costs for the remainder of the 50-year period under the SBA will now be available to the lessee as a cost for capital gains tax purposes, and the landlord will no longer be able to claim the remaining SBA.
  • Giving allowances where a structure or building is purchased from the Crown or other person not within the charge of UK tax.
  • Modifications to the rules for claiming allowances when a person makes a contribution to another person.
  • Amendments to the criteria for disuse. Temporary disuse will not affect SBAs, provided there is no residential use, i.e. relief will continue to be available, with no prohibition for periods of disuse.
  • Demolition is usually considered a disposal event for capital gains purposes. Any unrelieved expenditure would be claimed as a deduction in arriving at the capital gains computation. This avoids businesses having to continue with ‘shadow’ SBA claims, after the structure or building has been demolished or where interest in land may have expired, whilst at the same time making sure investors are able to claim relief for all qualifying construction costs.
  • Amendments to TCGA 1992 including the potential for creating a capital loss, especially for lessees (see above). As there is no claw-back of SBAs through capital allowance computations, these will need to be considered in any capital gains calculation on disposal of a property, i.e. potentially a full or partial claw-back of the relief obtained through SBAs as they increase the taxable capital gain.

Tommy Nguyen, PwC (