The structures and buildings allowance (SBA) will apply to qualifying construction and improvement expenditure committed to on or after 29 October 2018, but the law and regulations to implement the SBA are subject to a consultation which closes on 31 January 2019. So what do we know?
Documents are key
The SBA doesn’t have an expenditure cap, so it doesn’t matter how much the business spends on qualifying construction in a particular period, as long as the contracts for the physical works, including any preparatory works, are made in writing and are entered into on or after 29 October 2018. The expenditure must also be incurred on or after 29 October 2018.
There will be anti-avoidance rules to discourage businesses from fudging contract dates on recently started projects so they fall within the SBA. If a contract dated before 29 October is withdrawn, revoked, or replaced by a later contract, SBA may not apply. Similar anti-avoidance rules will prevent retrospective use of leases to divide up interests in a building between different parties.
The SBA will cover all construction, renovation, conversion and repair costs (FB 2019 cl 29(12)). This is encouraging as businesses won’t have to argue whether the expenditure was an improvement or a repair. Demolition costs will also be covered, and costs of preparing the land, but the cost of acquiring the land and the cost of obtaining planning permission is not covered. Purchases of new and unused buildings from a developer will qualify, subject to an apportionment to take out the value of the land.
Definitions to be defined
A claim for SBA will only be permitted once the building is in “qualifying use” by the business. Regulations will determine what “qualifying use” means, but we do know this will be restricted to “prescribed business purposes” – also to be defined by regulations. Any building used partly or wholly as a dwelling house, or ancillary to a dwelling (perhaps a garage) won’t qualify. Also, any building used for holiday or overnight accommodation of a prescribed kind is unlikely to qualify.
There will be plenty of scope to influence how the regulations for the SBA are framed, so if your clients are likely to benefit from this new allowance, encourage them to submit representations to the consultation.
Written by the Tax Advice Network