Structures and Buildings Allowance

  • By Mark Morton
  • 11/04/2019

This change, announced at Budget 2018, provides for capital allowances for expenditure incurred on or after 29 October 2018 on the construction of a building or structure in qualifying use. The annual rate of allowance is 2%. 

After some delay HMRC have now published the draft rules for consultation.

The new rules apply if the construction of a building or structure begins 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.

Broadly, three things are required in order for costs to qualify for the new relief, namely:

  • qualifying expenditure is incurred on construction or acquisition;
  • the building or structure is not in residential use; and
  • there is a qualifying activity.

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. A person ceases to be entitled to an allowance if the building or structure is brought into residential use or demolished.

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

Expenditure incurred on the acquisition of land or rights in or over land (including fees, stamp duty and other incidental costs attributable to the acquisition) or on altering land is excluded, as is expenditure incurred on, or in connection with, seeking planning permission (including fees and related costs). Expenditure on the provision of plant or machinery is also excluded.

However, capital expenditure incurred on the renovation or conversion of a part of a building or structure or on repairs to a part of a building or structure that are incidental to the renovation or conversion of that part is treated as if it were capital expenditure on the construction of that part of the building or structure for the first time and so is subject to a separate 50 year write off.

As always in the world of tax, the rules are complex.

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