The structures and buildings allowance (SBA) gives tax relief of 3% a year, on a straight-line basis, for the cost of constructing, renovating or converting non-residential buildings and structures. Relief runs for 33⅓ years, so the full cost is eventually written off. It applies where the construction contract was entered into on or after 29 October 2018, it is available to both companies and unincorporated businesses, and it is claimed through the tax return, but only once a written allowance statement exists. Expenditure on qualifying buildings in special tax sites can get an enhanced 10% a year over 10 years.
What qualifies
SBA is given on construction costs of a building or structure whose first use is non-residential and which is then used for a qualifying activity. Qualifying activities include a trade, profession or vocation, a property business letting non-residential property, managing the investments of a company, and certain land-based trades such as mining and quarrying. Offices, shops, factories and warehouses are the typical cases.
Qualifying costs include:
- Design fees. Architects' and engineers' fees for the design of the structure;
- Site preparation. Preparing the site for construction;
- Construction works. The cost of building the structure itself;
- Renovation and conversion. Renovation, repair and conversion costs, including converting an existing building to a qualifying use;
- Fit-out. Fitting-out works that do not qualify as plant and machinery.
If a building is bought unused from a developer, SBA is generally based on the price paid, after stripping out non-qualifying elements; if it is bought second-hand, the buyer takes over the previous owner's remaining allowance.
What does not qualify
- Dwellings. Any residence, or a structure in the grounds of a residence;
- Land. The cost of the land itself, including stamp duty land tax and other acquisition costs, and land reclamation, remediation and landscaping;
- Planning permission. Fees and costs of seeking planning permission;
- Plant and machinery. Anything that qualifies for plant and machinery allowances, including integral features such as electrical, cold water, heating and ventilation systems and lifts, which must be claimed under those rules instead;
- Financing and legal costs. Loan costs, public inquiries and legal expenses;
- Grant-funded spend. Expenditure met by a grant or contribution.
The plant and machinery boundary matters more than it used to. Integral features go into the special rate pool at 6% a year, but they can also be covered by the annual investment allowance, which gives 100% relief immediately. Separating them out of a building contract is usually worth far more than leaving them inside the SBA claim at 3%.
The allowance statement
No SBA can be claimed until the allowance statement requirement is met: until then, the law treats the qualifying expenditure as nil. The person who incurred the expenditure must make a written statement identifying the building and recording:
- The date of the earliest contract for the construction.
- The amount of qualifying expenditure incurred on construction or acquisition.
- The date the building was first brought into non-residential use.
- For later qualifying spend, such as an extension after first use, the date that expenditure was incurred.
A buyer of a second-hand building can only claim if it obtains a copy of the allowance statement from a previous owner. In practice this makes the statement a property due diligence item: without it, the buyer's remaining allowance is worth nothing.
Worked example
A manufacturing company with a 31 March year end signs a contract in March 2026 to build a new warehouse. Qualifying construction costs, after removing the land, planning fees and £180,000 of electrical and heating systems claimed as plant, are £1,200,000. The warehouse comes into use on 1 October 2026.
- Annual allowance. 3% × £1,200,000 = £36,000;
- Year to 31 March 2027. The building is in qualifying use for 182 of 365 days, so the allowance is reduced proportionately: £36,000 × 182/365 = £17,951;
- Later years. £36,000 a year until 33⅓ years from 1 October 2026;
- Tax value. If the company's profits exceed £250,000, so that it pays the 25% main rate throughout, £36,000 of allowance saves £9,000 of corporation tax a year. If its profits fall between £50,000 and £250,000, the allowance comes off profit taxed at an effective marginal rate of 26.5%, so it saves £9,540; at £50,000 or less it saves 19%, or £6,840.
If the company sells the warehouse on 31 March 2036, having claimed about £342,000 of SBA, that amount is added to its disposal proceeds when computing the chargeable gain. SBA therefore defers tax rather than eliminating it for a business that later sells at a gain, although the timing benefit of ten years of relief is still real. The buyer continues claiming £36,000 a year for the remaining period, provided it receives the allowance statement.
Leases, disuse and enhanced rates
- Who claims. The allowance follows the "relevant interest", normally the person who incurred the expenditure. A tenant who pays for construction can claim on its own spend, and a long lease of 35 years or more can transfer the landlord's entitlement in some cases;
- Periods of disuse. A building that falls out of use after a period of qualifying use is still treated as in use, so the allowance continues;
- Short or partial periods. The allowance is pro-rated where the accounting period is not 12 months or the conditions are met for only part of it;
- Special tax sites. Qualifying expenditure on buildings in a designated Freeport or Investment Zone special tax site attracts 10% a year over 10 years. Construction must begin while the area is a special tax site, and the spend must be incurred, and the building brought into use, by the sunset date that applies to that site.
Common mistakes
- No allowance statement. Claims made before the statement exists are invalid, and buyers who do not ask for one lose the remaining relief;
- Claiming integral features at 3%. Electrical, heating and similar systems belong in plant and machinery allowances;
- Forgetting the disposal adjustment. Sellers must add the SBA they have claimed to their sale proceeds;
- Applying it to residential property. Dwellings, including buy-to-let homes, never qualify.
Sources: Claiming capital allowances for structures and buildings; CAA 2001, s 270AA; CAA 2001, s 270BG; CAA 2001, s 270EA; CAA 2001, s 270IA; TCGA 1992, s 37B. For the plant and machinery side, see our guide to the super deduction and its successors, and for enhanced reliefs, what a UK freeport is.
Acumon's capital allowances team prepares allowance statements and splits construction costs between SBA and plant and machinery, and our corporation tax advisers build the claims into the company's return.