Structures and Buildings Allowance – why is this relevant for charities?
The new structures and buildings allowance (SBA) is a tax relief for expenditure on construction contracts signed on or after 29 October 2018. Whilst the relief itself will generally not be available to charities, that don’t ordinarily pay tax on their income, calculating the SBAs available on a property and retaining appropriate documentation could increase the property value if sold. This is because a tax paying purchaser will be able to take a tax deduction for any SBAs remaining.
How the relief works
If a taxpayer constructs a new building or renovates an existing non-residential building on land it owns then they are eligible for an allowance of 3% of the qualifying expenditure each year (2% prior to 1 April 2020), so relief is obtained over 33.3 years. The deduction will be taken from the relevant taxable activity that the building is used for (e.g. from trading income or commercial property income).
Non-tax paying charities will not be able to claim any allowances for their period of ownership, but they will be able to pass on the qualifying spend to future purchasers. However, the 33.3-year clock will not reset, so a building sold by a charity 20 years after it was first brought into use will entitle the purchaser to only 13.3 years of SBAs.
SBAs are only available on the cost of constructing or renovating a building or structure. The purchase of land and its alteration (other than so as to create a structure) are excluded, as are planning fees. Where repairs to a building are incidental to a renovation, these can also be included for SBAs.
Capital allowances, as a separate relief from SBAs, are available on certain “integral features” included in building works. Such items are excluded from SBA qualifying expenditure, but as with SBAs, capital allowances may be valuable to future buyers, so it is important that the relevant information is obtained in the first instance.
The allowance statement
Taxpayers wishing to claim SBAs must keep an allowance statement. This is a record detailing all the costs eligible for SBAs and how the property has been used. Purchasers will need to obtain an allowance statement from the seller if they want to claim SBAs in the future. The Commercial Property Standard Enquiries (CPSE) questions have been amended to reflect the need for information about SBAs, so vendors can expect future purchasers to ask for details about whether SBAs are available and if an allowance statement can be provided to them. Charities that fail to prepare an allowance statement on the completion of a building may find that on sale, their buildings are worth less than they expected and are less attractive to a taxpaying purchaser.
In order to ensure that all qualifying expenditure is included it is advisable to conduct a review of the SBA position as soon as possible after construction or a refurbishment is completed. PEM can assist in identifying qualifying expenditure and preparing the allowance statement.