Q: Following continued growth for my business, we have outgrown our current premises. We are considering adding to our facility on adjacent land or buying a nearby facility. Which would attract the most tax relief?
Prior to the UK Government’s Budget during 2018, most structural expenditure incurred on commercial premises did not qualify for any tax reliefs. Capital allowances, a useful tax relief for businesses, was aimed at assets which qualified as plant or machinery, enabling a business to deduct some or all of the value of the capital items from its profits before it pays tax.
However, a much-welcomed change to the capital allowance rules came into effect on 5th July 2019 when a new relief known as “Structures and Buildings Allowance” (SBA) was introduced. SBA’s can be claimed retrospectively to all qualifying expenditure under contracts which had been entered into on or after 29th October 2018.
Structures and Buildings Allowance | What you need to know
Structures and Buildings Allowance is intended to support business investment through the construction of new structures and buildings. However, it is important to note that the relief also covers the renovation, extension or conversion of existing structures.
Originally, the SBA allowed for a 2% writing down allowance on certain costs over a 50 year period. However, the rate of relief was increased to 3% from April 2020 meaning that full relief can now be obtained over 33 and 1/3rd years.
While SBAs will be available should you decide to extend your existing facility on adjacent land, it is worth noting that not all the work you undertake will be considered structural. The Integral Features i.e. electricals, heating, water systems, etc. required for the new build will be eligible for the usual Capital Allowances, and 100% relief given in year of purchase if you have any of your £1million Annual Investment Allowance remaining. Therefore it is important to separate each costs between structural, machinery and integral features on the build to make sure you are accelerating your relief.
However, when purchasing a property, the Capital Allowances you can claim is not necessarily the purchase price you pay.
There are three elements to how you can make a claim;
- a joint election with the seller,
- the seller was unable to claim capital allowances and/or
- the seller provides a SBA Statement with the remaining allowances left to claim.
‘Fixtures’ are plant & machinery and integral features that are fixed to the building, for example the equipment that would stay in place if a building was turned on its roof, and it is these fixtures that create the difficulty in many property transactions. In order to transfer capital allowances on fixtures there is a pooling requirement and a joint s.198 election must be made by both the seller and purchaser.
The joint election between you and the seller sets the value of the “fixtures” they are agreeing to transfer to you, this should form part of the purchase negotiations or at the very least a clause to agree values at a later date. An election must be made and submitted to HMRC within the two years of the transaction to be valid.
However, if the seller was unable to pool the cost of these “fixtures” and make a claim themselves, you may have scope to claim now as the first owner of the property after an ineligible period. Finally, if the seller built the property after the introduction of SBAs, the would not have claimed the full 33 and 1/3rd years allowances on the structural costs. They will need to provide you with a Structural Buildings Allowance statement so you know what is left to claim.
Therefore, tax relief should be available on all qualifying capital expenditure incurred on your new facility whether you decide to extend an existing facility or purchase from a third party. But given the added points to consider when carrying out a commercial project, it is recommended you seek early advice from your accountant or tax advisor to ensure all reliefs are accelerated and maximised.
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