The UK’s tax landscape is constantly evolving to meet both the needs of the economy and the changing demands of various industries. One of the key provisions for property developers and businesses involved in construction is the Structured Building Allowance (SBA). The Structured Building Allowance, introduced in April 2020, is designed to offer a tax relief to encourage investment in new and environmentally friendly buildings, further supporting the construction sector.
In this blog post, we will break down what the SBA is, its eligibility criteria, how it works, and the benefits it provides for those in the construction and property development sectors.
What is the Structured Building Allowance?
The Structured Building Allowance (SBA) is a form of tax relief introduced in the UK as part of the government’s efforts to stimulate investment in new buildings that are suitable for business use. The primary goal of the SBA is to allow businesses to claim deductions on the capital costs associated with constructing new buildings. The allowance can be claimed over a period of 33 years, which makes it one of the most long-term tax relief schemes in the UK.
This tax relief is designed to benefit a broad range of sectors, including those involved in commercial and industrial property development, as well as those constructing new office buildings, warehouses, and similar structures.
Key Features of the SBA
Here are the most significant features of the Structured Building Allowance:
-
Long-Term Relief: The SBA provides tax relief at a rate of 3% per year over a period of 33 years. This means that businesses can deduct 3% of the total construction costs annually.
-
Qualifying Expenditure: Not all costs related to construction will qualify for the SBA. Only the capital expenditure involved in building the structure itself qualifies. This includes construction costs, professional fees, and other costs that are directly related to building work.
-
No Requirement for an Environmental Benefit: Unlike some other allowances, the SBA does not require the building to meet specific environmental standards or sustainability targets. However, the building must be used for commercial, industrial, or other qualifying business purposes.
-
Claiming the Allowance: The allowance is claimed annually and is deducted from taxable profits. This can reduce the overall tax burden for businesses involved in construction or renovation.
-
Only New Builds: The SBA is specifically designed for new buildings. It is not applicable to renovations or existing properties, although other allowances like the Annual Investment Allowance (AIA) might be available for those.
-
Non-Deductible Components: The SBA does not apply to certain components, such as land, as these are typically not considered part of the construction costs. The focus is solely on the structure of the building.
Eligibility for SBA
To qualify for the Structured Building Allowance, a few eligibility criteria must be met:
-
Building Type: The SBA applies to new buildings that are intended for use in a qualifying trade, such as commercial, industrial, or agricultural businesses. The building must not be used as a private residence.
-
Use of the Building: The building must be used for business purposes. Mixed-use buildings where part of the structure is used for business and part for personal use may still qualify, but only the business-use part can be claimed for SBA.
-
Capital Expenditure: The tax relief is based on the costs associated with the construction of the building. This includes materials, labor, and other associated expenses. However, it does not cover land costs or certain other non-building-related expenses.
-
Ownership: The SBA applies to individuals, companies, and other entities who are the owners or lessees of the new building. If the business leases the property, it can still claim the SBA if the capital expenditure is incurred by the lessee.
How Does the SBA Work?
When a business constructs a new building, it can claim the SBA on the capital costs of the structure, including:
- Construction of the building itself.
- Associated professional fees (architects, surveyors, etc.).
- Costs related to the building’s foundation and structural support.
The tax relief is spread out over a period of 33 years, with businesses claiming a 3% deduction on the qualifying capital expenditure annually. For example, if a business incurs £3 million in eligible construction costs, it can claim £90,000 per year for 33 years.
Example:
Suppose a business builds a new office building with total construction costs of £1 million. The business can claim 3% of this cost annually as a tax deduction. This means the company could claim £30,000 each year over 33 years, which results in total tax relief of £990,000.
Benefits of SBA
The SBA provides several benefits to businesses involved in construction or property development:
-
Improved Cash Flow: By reducing taxable profits over a long period, businesses can retain more capital to reinvest in their operations, improving cash flow.
-
Incentivizing New Builds: The allowance encourages businesses to invest in new commercial and industrial buildings, promoting growth in the property development sector.
-
Encouraging Long-Term Investment: The 33-year period over which the relief is claimed helps to ensure businesses have long-term financial benefits from constructing new buildings. This makes the investment more attractive, as businesses can spread their tax relief over an extended period.
-
Non-Restrictive: Unlike some other building-related tax incentives, the SBA doesn’t require the building to meet specific environmental standards. This makes it broadly accessible to a range of industries and sectors.
Key Considerations
While the Structured Building Allowance offers a valuable tax relief opportunity, there are a few important considerations to keep in mind:
-
Strict Criteria for Qualifying Expenditure: Only the costs related to the actual construction of the building itself will be eligible for the SBA. Additional costs such as land acquisition, landscaping, and certain internal fittings are not eligible for this tax relief.
-
33-Year Period: The long period over which the relief is spread out means businesses will need to plan accordingly, as the tax benefit is incremental.
-
Limited to New Buildings: The SBA only applies to new constructions. Existing structures or renovations do not qualify, which means businesses looking to renovate older properties may need to consider other forms of tax relief.
Don't miss out on the opportunity to reduce your tax burden and improve cash flow for your business.
Contact Breaking the Mould Accounting Limited today to discuss how we can assist you with SBA claims and other tax reliefs. Let us help you break the mould and make your business thrive!
Get in touch with us now to schedule a consultation!
