Summary: A new Structures and Buildings Allowance (“SBA”) has been announced for expenditure incurred on or after 29 October 2018, on new non-residential structures and buildings intended for commercial use. This is a welcome incentive for those constructing new buildings or improving existing ones.

The cost of works to bring structures and buildings into existence and to improve existing structures and buildings will be eligible, as well as the costs of conversion of a building for use in a qualifying activity (e.g. property letting or otherwise using the property as capital asset in the course of its trade or business). SBA can be claimed separately to capital allowances on expenditure incurred on plant and machinery but, unlike expenditure on plant and machinery, SBA will not qualify for the Annual Investment Allowance.

SBA will be available to businesses which are carrying on a qualifying activity and will be available at a rate of 2% per annum on a straight-line basis, over a fixed 50-year period, starting from when the structure or building comes into qualifying use. Unlike capital allowances on plant and machinery, there will not be a system of balancing charges or balancing allowances on a disposal of the asset. Instead, the purchaser will continue to claim the annual allowances of 2% of the original cost. In order to transfer the benefit of allowances, businesses will need to keep records of the expenditure incurred on the works and expenditure attributable to the land.

If relief is not claimed, it will not be able to be carried forward to a later period and will be lost. There will be notional allowances for businesses that are not within the charge to UK tax (e.g. tax exempt businesses will be assumed to have claimed the allowance each year).

Where SBA is claimed, a person’s allowable cost for chargeable gains purposes on a disposal will be reduced by the total amount of relief that they have claimed.


Relief will not be available for structures or buildings where a contract for the physical construction works has been entered into before 29 October 2018. In relation to speculative building and those structures or buildings constructed “in house”, relief will also not be available where the construction activity began before 29 October 2018.

Anti-avoidance rules will apply to prevent manipulation of the rules (e.g. revising or revoking agreed construction contracts entered into before 29 October 2018).

“Qualifying expenditure”

SBA will be available for capital expenditure on structures and buildings brought into use for a qualifying activity. This includes a UK or overseas property business that is an “ordinary” business for the purposes of the Capital Allowances Act 2001. Where an asset is constructed for a qualifying activity that has not yet commenced, expenditure will not qualify if incurred more than seven years before that qualifying activity commences.

Capital expenditure undertaken on structures or buildings after the date on which it enters into use will qualify for SBA as a separate allowances (also 2% of the total and claimed over the next 50 years, even if that period goes beyond the period of allowance for the original construction costs on that structure or building).

Where an asset ceases to be used for an activity that qualifies for relief, then relief can be claimed for a further period of up to two years. After this point, no further relief can be claimed until the structure or building is once again used for a qualifying activity. The two year period may be extended to five years where the structure or building substantially no longer exists after extensive damage. New expenditure (net of compensation or insurance payments) on reconstruction may qualify in its own right. If a structure or building is demolished, and the owner does not replace it, the owner can continue to claim SBA on that asset, for the remaining term of the previous structure or building.

Where a structure or building that was originally used for a qualifying activity undergoes a change in use and becomes a dwelling, SBAs will no longer be available for the period for which the structure or building is in use as a dwelling. Apportionment is needed in the event the change in use occurs part way through a period.

“Structures and buildings”

Structures and buildings includes offices, retail and wholesale premises, walls, bridges, tunnels, factories and warehouses. Capital expenditure on renovations or conversions will also qualify but capital expenditure does not include those costs that can be allowed as a deduction in calculating the profits of the business.

Expenditure on residential property and other buildings that function as dwellings will not qualify for SBA. In this case, “dwellings” are buildings intended or used for long-term residence, including university or school accommodation. Hotels and care homes will qualify for SBA. For properties where there is mixed use, the relief will be reduced by apportionment, but SBA will not be available where 10% or less of the costs incurred would meet the conditions for the relief. The definition of “dwelling” for the purposes of the relief is to be consulted on.

Expenditure on land or acquiring rights over land will not qualify for relief. This includes legal costs, SDLT or costs in relation to a planning permission. Where a structure or building is acquired from a developer, an apportionment of the purchase cost from the developer will be required to separate the amount of the cost that is attributable to the land. The eligible costs will be the overall acquisition cost less the value of the land acquired. Relief for expenditure on an overseas structure or building will be available on the same basis as for a UK structure or building.


Ordinarily, where an asset is the subject of a lease, both the lessor and the lessee will be eligible to claim SBAs in respect of qualifying expenditure that they themselves incur on construction works as long as each is using the asset for a qualifying activity (e.g. property investment business for the lessor). SBAs will be linked to the person’s particular interest in the structure or building.

Where the grant of a lease is substantially no different to a purchase of the land (the most obvious example being the grant of a 999 year lease for a peppercorn rent and substantial capital premium), entitlement to claim SBAs available to the lessor will need to be reduced and allocated to the lessee.

Where the grant of a lease is substantially no different to the sale of a property, the government proposes the following rules to apply:

  • Where the amount paid as a capital sum for a lease (including any element of a lease under 50 years allocated to capital), is 75% or more of the sum of that capital amount and the value of the retained interest in the property, then the lessee will become entitled to the full amount of the SBA attributable to the asset being leased.
  • Where only part of the property is subject to a lease, the test will apply only to that part, and allowances will transfer if the capital sum is 75% or more of the value of that part.
  • Where this is less than 75%, all the allowances will stay with the lessor.
  • Where the term of the lease is not more than 35 years, all the allowances will stay with the lessor.
  • The value of the interest in the property retained by the lessor will include the value of the right to receive the rent due under the lease.


X Ltd (a UK company) acquires bare land for £70m on which it builds an office block which it will lease out. It incurs construction costs of £150m under a construction contract entered into on 31 October 2018. It brings the building into use for its property letting business at the beginning of its accounting period ending on 31 December 2021. The annual writing down allowances for X Ltd will be:

£150 million x 2% = £3 million SBA each year, for 50 years.

On 31 December 2030 the building is sold to Y Co Ltd for continued use in a property letting business of Y Ltd. The price paid was £300 million, of which £150 million relates to the land.

Y Ltd will be entitled to claim SBA on the original construction costs of £150 million, less the proportion already received by X Ltd.

In 2032, Y Ltd decides the buildings requires renovation and it is unoccupied for 2 years. Y Ltd can continue to claim £3 million SBA per annum because the period is less than 2 years. The cost of renovation is £50 million and when the building is brought back into use by Y Ltd, a separate SBA of £50 million x 2% = £1 million, can also be claimed from 2032 onwards.

What next?

The Government is to include powers to introduce the SBA in Finance Bill 2018-2019. The statutory instrument for the SBA will be made after Royal Assent of Finance Bill 2018-2019. The government is to publish a draft of the proposed secondary legislation on the SBA and will consult on it over the winter, ahead of this being laid before Parliament after Royal Assent is granted to the Finance Bill.

In particular, the government is seeking views on the following aspects of the SBA:

  • Residential use exclusion – are there specific types of building that should be included?
  • The 35 year threshold for the transfer of SBA from lessor to lessee on the grant on a lease.
  • Any specific issues regarding overseas property that require specific provision in the draft legislation.
  • Should specific provisions be included to cover overseas development?
  • The two year (in some cases 5 year) eligibility period in the case of disuse. Are there any significant practical problems which would prevent this policy from working?