In this column Robin Lee, Partner at Streets Chartered Accountants, asks: are you missing out on tax relief for new commercial property construction?
This allowance applies to new building work when all of the contracts for the physical construction were entered into on or after 29 October 2018.
This new allowance is available to companies and businesses (including property rental businesses) at a flat rate of 2% per annum over 50 years.
The costs eligible for the allowance are limited to the costs of physically constructing new structures and buildings. It does not include the cost of the land or the costs of acquiring rights over the land.
Where a previously constructed building or structure is acquired from a developer the purchase price will need to be apportioned to determine the non-qualifying land element. Where a company or business constructs a building or structure itself it will be able to include the cost of demolition or land alterations necessary for construction.
The relief is available from when the building or structure is brought into use for a qualifying activity. Any expenditure incurred more than seven years before the activity commences will not qualify.
What structures and buildings are likely to qualify?
The allowance is only available for the new construction of new commercial structures and buildings. This includes offices, retail and warehouse premises, factories, hotels and care homes as well as structures like walls, bridges and tunnels.
It does not include residential property or other buildings primarily intended for long term residence – houses, flats or university accommodation. Home office where the workplace is an integral part of the home will also not qualify.
Interaction with Capital Allowances
Expenditure can only be claimed once. Therefore if you have fixtures and fittings that attract capital allowances as plant and machinery then you will want to make a claim here in preference as the tax relief is far quicker, especially if the annual investment allowance is available at 100% in the year of expenditure.
Apportionment of Expenditure
If a building is divided into separate parts and some parts qualify for the allowance and some do not, an appropriate proportion of the expenditure can be claimed for the allowance. However if 10% or less of the costs qualify then none of the costs can be claimed.
Subsequent renovations and disposals
Subsequent capital expenditure on a qualifying building or structure after it has been brought into use is also eligible for the 2% annual claim.
Where a qualifying building is sold there are no balancing adjustments on disposals. Instead the new owner will be able to continue claiming the relief for the remainder of the 50 year qualifying period provided it continues to be used by them for a qualifying period.
For Capital Gains tax purposes the cost of the building is reduced by the value of the Structure and Buildings allowance claimed.
The structures and buildings allowance is not widely known about, nor is its application and use fully understood. Therefore, we advise that professional tax advice is sought to ensure the appropriate tax reliefs and benefits are realised.