Tax briefing: draft legislation on the new capital allowance for structures and buildings has now been laid before Parliament, following its announcement in the Autumn Budget 2018.

The Autumn Budget 2018 announced a new tax relief for businesses incurring qualifying expenditure on new structures and buildings, alongside a technical note published by HMRC.

Following consultation, the draft Capital Allowances (Structures and Buildings Allowances) Regulations 2019 were laid before Parliament in June. The regulations will amend the Capital Allowances Act 2001, which sets out the capital allowances available on business assets. HMRC has also published a policy paper.

The draft legislation deals with a number of issues highlighted during the consultation, including short-term leaseholds, eligible pre-trading costs, periods of disuse, and reducing claimants’ administrative burdens. 

The structures and buildings allowance (SBA) is designed to incentivise investment in buildings and infrastructure, and is a welcome introduction following the withdrawal of various property-related allowances, including the industrial buildings allowances between 2008 and 2011. 

Features of the draft regulations

The SBA applies to businesses that invest in new builds or renovations on or after 29 October 2018. Key features include that it:

  • applies to new commercial structures and buildings or renovations at a flat rate of 2% per year over a 50-year period on eligible costs from the date of first use;
  • is available for commercial property only, and not for buildings in “residential use”;
  • will not apply if another tax relief has been claimed on the expenditure;
  • will be limited to the costs of physical construction, including demolition costs or necessary land alterations, and any direct costs required in the construction;
  • will not result in a balancing adjustment on sale of the asset, the purchaser instead taking over the allowances written down over the remaining part of the 50-year period; 
  • will, in respect of longer leases, give the benefit of the SBA for expenditure incurred by the landlord during the period of the lease to the leaseholder; and
  • will no longer apply if the building or structure is demolished, but will not be affected by temporary disuse, as long as there is no residential use.

Key points for consideration

Disposal. Since a sale of the building or asset will not result in a balancing adjustment clawing back any of the relief given, the buyer instead taking over the allowances, the seller may be required to make an allowances statement to allow the purchaser to benefit from the SBA following the sale. 

In terms of capital gains, any allowances claimed using this relief will proportionally increase the gain on the disposal of the asset. Businesses should therefore retain accurate records and ensure that they have a full picture of how the rules affect them when claiming any relief. This will be important in reducing any loss of value on disposal. 

Commencement date. The construction of a building or structure is treated as beginning before 29 October 2018, and therefore ineligible for SBA, if any contract for works to be carried out in the course of the construction of that building or structure (whether or not the contract also relates to the construction of other buildings or structures) is entered into before that date.

Residential use. Qualifying non-residential buildings and structures include walls, bridges, tunnels and warehouses. The definition of residential use is wide and the draft specifically includes student accommodation, prisons, and assets ancillary to residential use, such as a home office or garden. 

Leases. Holders of long leases (35 years or more), paying a substantial premium by reference to the property value, will be given the benefit of the SBA for expenditure incurred by the landlord during the period of the lease. Where this arises and the lease is under the 50-year period, the remainder of the balance will form the chargeable gains base cost for the lessee, instead of transferring to the landlord. The lease will be treated as continuing where it is renewed, extended or replaced, allowing the lessee to retain the benefit of the allowance following expiry.

This is a notable change from the original proposal that if leaseholders incurred qualifying expenditure on the property comprised in their lease, the benefit would pass to the landlord on the expiry of the lease, despite the landlord not having incurred the expenditure.


Most of the changes made in this latest draft will be welcomed by taxpayers. The SBA is a valuable tax relief and shows a renewed commitment by the Government to promote investment in UK structural assets. Landlords, tenants of longer leases, and those disposing of infrastructure and buildings assets, should take particular care to get to grips with the legislation, to ensure that the maximum available benefit is retained.

The Author
Margaret Rankin, solicitor, Pinsent Masons LLP
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