Structures and buildings allowance: key considerations

Executive summary

The Structures and Buildings Allowance (SBA) legislation was introduced to provide tax relief on qualifying construction costs for non-residential properties, offering a deduction spread evenly over thirty-three and one-third years. This measure was designed to encourage investment in commercial buildings and infrastructure by addressing a long-standing gap in the capital allowances regime. While the concept appears straightforward, its practical application is far from simple. Businesses undertaking large-scale developments, phased construction projects, or properties with multiple tenants often encounter significant complexity when determining entitlement and calculating claims.

Background

The SBA legislation was introduced in 2019 to fill a gap where no relief existed for structural costs in commercial property development. Prior to its introduction, businesses could claim allowances on plant and machinery but not on the building structure itself, leaving a substantial portion of construction expenditure outside the scope of tax relief. SBAs changed this by allowing a fixed annual deduction for qualifying costs, but entitlement depends on two critical factors: when the expenditure is incurred and when the building is first brought into qualifying use.

These timing rules are particularly relevant for developments that do not have a single, clear first-use date. For example, a new office building may be completed in stages, with different floors or units occupied by tenants at different times. In such cases, the legislation requires careful interpretation to avoid fragmented claims and ensure that allowance statements accurately reflect the position.

Technical context

The SBA legislation applies to all contracts for the construction or renovation of non-residential buildings or structures entered into on or after 29 October 2018, with relief given at a fixed rate of three percent per annum over thirty-three and one-third years. The claim period begins when the building is first brought into qualifying use, which is generally deemed to be the lease commencement date or, for owner occupiers, the date the building is ready for its intended purpose. Expenditure incurred before first use is grouped together and claimed from the date of first use.

However, expenditure incurred after first use is treated differently. Fit-outs, enhancements, or structural modifications undertaken after occupation can trigger separate SBA claim periods unless steps are taken to align them. Importantly, retention payments paid to contractors after the first use date also require separate SBA treatment. This is where provisions such as CAA 2001 s270BB become relevant. While the legislation offers options to simplify the treatment of post-use expenditure, these treatment options must be considered strategically and documented correctly to satisfy HMRC requirements.

For new builds with multiple tenants and staggered occupation dates, tracking first use for each part of the property becomes particularly challenging. In some cases, different parts of the building may have separate first-use dates, which means that expenditure incurred on one part cannot automatically be grouped with another. Elections under s270BB can help manage this, but allowance statements must be accurate and consistent with HMRC guidance to avoid compliance risks. HMRC expects businesses to maintain detailed records of expenditure, first-use dates, and any s.270BB treatments made, and failure to do so can result in disallowed claims or penalties.

Furthermore, unlike plant and machinery allowances which allows you to claim the full annual allowance in the year the expenditure is incurred, the 3% SBA in the first year must be apportioned with reference to the number of days from the date of first use in a period and the end of that period.  Unfortunately, the provisions in 270BB are not available to pre-first use expenditure.

The Capital Allowances (Structures and Buildings Allowances) Regulations 2019 (SI 2019/1087) is the formal secondary legislation that introduced SBAs in the UK.  This included amendments to Taxation of Chargeable Gains Act 1992 including a new insertion at s.37B stating that the amount of the consideration received on disposal of a building upon which SBAs have been claimed is increased by the amount of SBAs claimed by the seller.  This means the relief is a timing benefit only with the true benefit therefore dependent on the claimants weighted cost of capital or opportunity cost of capital, and the period held.

The impact

The implications of these rules are significant. Incorrect grouping of expenditure or failure to correctly apply s.270BB treatment (see HMRC guidance here) determinations can lead to fragmented claims, increased administrative burden, potential HMRC challenges and challenges in presenting compliant and accurate SBA statements to purchasers on disposal. Businesses that do not plan ahead may find themselves unable to optimise relief or, worse, exposed to compliance risks. The key lesson is that timing matters. Identifying qualifying expenditure early, correctly determining treatment of site wide infrastructure costs, understanding the implications of phased occupation, and ensuring allowance statements reflect any reliance on s270BB provisions are essential steps in managing SBAs effectively. For complex projects, particularly those involving multiple tenants or mixed-use properties, early engagement with specialists can prevent costly errors and ensure claims are maximised.

Non-taxpayers, such as pension funds, should also pay close attention to these requirements because failure to present accurate SBA statements onto taxpayer purchasers could significantly detract from the value of the property and result in compromised sale proceeds.

How we can help

TFI Group provides expert support in navigating the complexities of SBAs. Our team works with clients to review expenditure and timing, advise on the most effective use of the s270BB provisions, and prepare accurate allowance statements that meet HMRC requirements. For multi-tenanted developments and phased projects, we offer tailored strategies to simplify claims and maximise relief and work with subscribers to our CAD software to generate accurate and automated annual SBA calculations and SBA statements on disposal.

Author: Sam Moore