Budget 2018 – New Tax Relief for Commercial Buildings

It is not often that a new tax relief comes along, but Budget 2018 has given commercial property owners a valuable one, coming into effect on 29 October 2018.

If you enter into a contract on, or after, 29 October 2018 to construct a new commercial building, or to improve an existing one, which is for use in your business or for rental purposes you can now obtain tax relief for 100% of the build cost, under the new “Structures and Buildings Allowance”.

The relief is slow, given at 2% a year, so it will take 50 years to relieve the full cost, but it is worth having. The relief excludes cost of buying land but does include land preparation costs.  The relief also applies if you buy direct from the developer (where you must still exclude the underlying land cost).

The Structures and Buildings Allowance should be considered as working in conjunction with existing property “fixtures” claims.  There remains a strong cash flow benefit to making a concurrent fixtures claim, as it will drastically speed up your tax relief. Over the first five years only 10% of the total Structures and Buildings Allowance would be received but identifying the “fixtures” as a separate claim could typically lead to up to 63% or 100% of the fixtures tax relief being claimed, in that same period.

The example highlighted below shows how this would work for a new factory. Construction costs are £250,000, of which “fixtures” such as air-conditioning, electrics, plumbing, data cabling etc, amount to £100,000.  Using the existing rules for fixtures claims would obtain relief on the £100,000.  If the Annual Investment Allowance is available to the owner then all of that £100,000 could be relieved in Year 1. If the Annual Investment Allowance is not available then relief is given at 18% or 6% a year on the fixtures, depending on the equipment involved.  The Structures and Buildings Allowance would then be claimed on the balance of £150,000 that are not property fixtures – relief which was not available before. The Annual Investment Allowance is specifically not available to set against Structures and Buildings Allowance.

The amount of a building represented by “fixtures” varies, typically from 5% to 60% depending on the nature of the building, its history and whether the costs are acquisition or refurbishment.   Our capital allowances team identify millions of pounds of property allowances every year for our clients, from new builds, refurbishments, acquisitions, and including too long-held buildings.  We review the property history to ascertain your entitlement to make a claim, undertake site surveys, and prepare the claim to be submitted to HMRC.

Our tax team were finalists in this year’s Tolley’s Taxation Awards and we look forward to you getting in touch to see if we can save you tax on your commercial property.