Using SBAs and PMAs to maximise capital allowances for new build projects

A new allowance, the Structures and Buildings Allowance (SBA) has come into operation and will operate alongside the existing capital allowances available for plant and machinery and integral features (CAs). It is intended that the SBA gives relief for expenditure on the construction of commercial property that does not qualify for capital allowances.

The relief, which is given at a rate of 2% per annum, will  apply to any qualifying expenditure  where all contracts for construction work on a project were entered into on or after 29 October 2018.

When calculating how much SBA is available, qualifying construction expenditure includes the repair, renovation and conversion of existing property, as well as expenditure on new structures or buildings that are non-residential. No relief is available for the acquisition of land or for expenditure relating to rights over land.

Some key features of the SBA

• Relief will be available for UK and overseas structures and buildings, where the business is within the charge to UK tax
• Claims can only be made from when a structure or building first comes into use
• Dwelling houses will not qualify, nor any part of a building used as a dwelling where the remainder of the building is commercial
• The sale of the asset will not result in a balancing adjustment, instead the purchaser takes over the remainder of the SBA (i.e. what’s left of the 50 year period)

How to proceed with capital allowances claims

It continues to be beneficial to spend time identifying assets which qualify for capital allowances because these reliefs are at a higher rate and generally will mean that tax relief is obtained more quickly. It is also important to be aware that making a claim for SBA will affect any capital gain arising on the sale of the asset as the allowable cost of an asset will be reduced by the total amount of SBA that has been claimed (when effectively the SBA claimed will be clawed back); this is not the case with a capital allowance claim.

How to maximise tax reliefs available on new construction projects

• Identify those areas of expenditure on which capital allowances can be claimed (i.e. plant and machinery or integral features)
• Allocate the annual investment allowance (AIA) to spend on integral features first as these items attract capital allowances at a lower rate of 6%
• Identify expenditure qualifying for SBA and ensure a claim is made

It is important to note that recently published draft legislation sets out that in instances where relevant expenditure is incurred and a claim is made for SBA, if appropriate documentation is not retained in support of the claim, current and future owners will have their claims restricted to £nil.

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