Following the announcement in October 2018 of the introduction of a new capital allowance for expenditure incurred on non-residential structures and buildings (SBA), HMRC have now published detailed secondary legislation for consultation.
Comments are invited by 24th April 2019, with an overall response to the consultation published in May 2019.
Once finalised, it will be introduced as a Statutory Instrument and the intention is for the SI to be enacted before the summer recess 2019.
Whilst the revised consultation document broadly reflects HMRC’s Technical Notes issued at the 2018 Budget, some changes have been made following the consultation with stakeholders.
The main features are as follows:
- Tax relief of 2% on a straight line basis on new commercial structures and buildings or renovations but any SBA claimed will increase the capital gain on disposal of the asset.
- Relief will be available for UK and overseas structures and buildings where the business is in charge to UK tax
- Tax relief will be available from first use on contracts that were entered into on or after 29 October 2018
- SBA is only available on expenditure that doesn’t qualify for other forms of relief. Assets qualifying for general rate pool or special rate pool allowances will therefore not qualify for SBA. However it will not qualify for the Annual Investment Allowance (AIA).
- Demolition. The latest consultation includes some changes to how to treat demolition works. At the point of demolition, any residue of expenditure for SBAs will be included as part of the base cost of the property when calculating the loss on disposal.
- Previous draft legislation set out that SBAs would not be available for periods of temporary disuse over 2 years, resulting in an onerous task of record keeping for business. The latest draft legislation proposes that relief will continue to be available with no prohibition for periods of disuse.
- Leases. Where leases are granted for 35 years or more, and the incoming lessee pays a capital sum that is equal to or exceeds 75% of the sum of that capital sum and the value retained in the property, the lessee has the right to claim allowances on expenditure incurred by the landlord. At the end of the lease, it will be deemed that the assets have been reacquired by the landlord, together with the entitlement to claim any unused allowances.
Lovell Consulting Commentary
This legislation is valuable as it provides for additional tax relief on expenditure where previously no relief was available. However, the downside is the added burden of record keeping for construction start and end dates, dates for first use and cost information. This will be a particular headache for companies that hold a large number of properties.
Some taxpayers will be preparing their tax returns for YE December 2018 and may conceivably be eligible to claim SBAs. However to include SBAs, they will need to wait until the legislation has been finalised. It is important that they stay in touch with their tax advisors to ensure that any such allowances are claimed in accordance with the final legislation.
The focus will still be to maximise on plant and machinery allowances as they will not qualify for SBAs. Expert advice should be sought when building or refurbishing property to ensure the tax relief from both PMAs and SBAs are maximised.