Qualifying expenditure can include amounts incurred on structures and buildings, as well as incidental expenditure (such as demolition works and/or land alterations to facilitate construction). No relief is available in respect of expenditure incurred on land, other than the alteration of the land for the installation of a building or structure.

Qualifying expenditures does not include expenditure that would qualify for plant and machinery allowances (“PMA”). In order to benefit from the SBA, businesses must therefore undertake a capital allowances analysis to segregate expenditure relating to the provision of structures and buildings from expenditure on the provision of plant and machinery. Businesses can continue to claim PMAs in respect of qualifying expenditure incurred on the provision of plant and machinery, at the higher rates of annual relief.

From April 2020, SBAs are available on a straight-line basis over 33⅓ years (i.e. 3% per annum). Unlike with PMAs, in the event that SBAs are not claimed in respect of a period, the allowances will not be available to be carried forward to a later period, and the benefit will be lost.

For any subsequent capital projects, the availability of SBAs will need to be separately considered. If applicable, SBAs will be available on a straight-line basis over 33⅓ years from the date the new additions are brought into use (with the first year’s allowance time apportioned from this date). Once brought into use, even if subsequently the building or structure is temporarily not in use, SBAs will continue to be available as long as the claimant continues to hold the relevant interest.

For properties that are demolished in their entirety, SBAs will no longer be available and the balance of unclaimed SBAs will be lost. SBAs claimed up to the point of demolition will be treated as deemed consideration in the Chargeable Gains computation.

SBA expenditure does not qualify for the Annual Investment Allowance (AIA), which is only available for expenditure incurred on the provision of plant and machinery.

For SBAs to be available, all contracts for the physical construction must be entered into on or after 29 October 2018. This may extend to demolition or enabling works contracts in preparation for the construction of the particular building or structure.

For projects where internal employees carry out the construction works (and there may, therefore, not be a specific contract in place), SBAs are available where such works commence on or after 29 October 2018.

As with PMAs, there is scope for a lessee to claim SBAs in respect of a property it leases, to the extent the lessee incurs its own qualifying SBA expenditure, e.g. as part of a tenant fit-out. The lessee can claim SBAs during the term of its lease.

On the expiry of the lease, SBAs will no longer be available but the balance of unclaimed SBAs will effectively be allowed as a capital loss for the lessee (which can be offset against other capital gains within the company/group).

On the sale of a property in respect of which SBAs are applicable, any SBAs claimed during the vendor’s period of ownership will be treated as additional consideration in the Chargeable Gains computation. This differs from the existing provisions relating to plant and machinery, whereby PMAs cannot create or increase a capital loss but do not impact a capital gain (which remain unchanged).

The vendor will need to provide an ‘allowance statement’ to the purchaser, setting out:

• The date of the earliest contract for the construction of the building or structure;
• The amount of qualifying SBA expenditure incurred; and
• The date it was first brought into use.

Provided this allowance statement is obtained, the purchaser will inherit the residual SBA pool, which will be written down over the remainder of the 33⅓ year period. This is the case even where the vendor is an entity not within the charge to UK tax, as the 33⅓ year period begins from the date of first use, regardless of whether SBAs have/could have been claimed.

In addition, the grant of a long lease (for a term of more than 35 years and conferring at least 75% of the market value of the property) is treated as the lessee acquiring the relevant interest and transferring entitlement to claim SBAs from the lessor.

In the event that a newly built property is acquired from a developer, the new owner may be able to claim SBAs based on the part of their own purchase consideration which relates to the acquisition of the building or structure.