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Draft legislation for non-residential structures and buildings

Capital allowance: Structures and Buildings

Draft legislation on new capital allowance, looks to help support business investment in the UK for non-residential structures and buildings.

Claire Angell

Partner, Head of Energy Tax

KPMG in the UK


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Draft legislation on capital allowance for non-residential structures and buildings  - Blue Glass Building

Draft legislation has been published in respect of the Structures and Buildings Allowance (SBA), announced as part of Autumn Budget 2018. The drafting broadly mirrors the key features detailed in HMRC’s technical note published as part of the Budget, however certain key changes have been made in response to the recent consultation with stakeholders.

HMRC invited further comment before 24 April 2019 on the draft legislation before it was finalised in the form of a Statutory Instrument (from powers included in Finance Act 2019). Eligible taxpayers should be able to benefit from this relief in respect of qualifying expenditure incurred from 29 October 2018.

The draft legislation is extensive but a number of points which remain unclear.

Key technical elements of the draft legislation are:

  • Tax relief available – the allowance will be available at 2% per annum (straight line basis) in respect of new commercial structures and buildings or renovations, from the date of first use. Importantly, any SBA claimed will proportionally increase the capital gain on disposal of the asset in question;
  • Commencement – rules surrounding the relevant contract (or connected contracts) determine if a project is deemed to start after the 29 October 2018 and therefore eligible for relief;
  • Interaction with other tax reliefs – if expenditure qualifies for another tax relief (e.g. plant and machinery allowances) the expenditure will, on the whole, be ineligible for SBA;
  • Transfers of second hand assets – there are many permutations of how a purchaser will quantify the available SBA depending on whether the asset has been brought into use and the tax status of the prior owner(s), with many transactions requiring the vendor to make an ‘allowances statement’ in order for the purchaser to benefit from any SBA going forward;
  • Restrictions – HMRC have sought to clarify the instances where expenditure on land or ‘residential use’ property would be ineligible for the relief. While it is clear certain asset classes will be excluded (e.g. student accommodation), the legislation is not comprehensive which may result in uncertainty for certain taxpayers; and
  • Leasing complexities – where a new lease with a term of 35 years or greater is granted and a capital sum is received in consideration, calculations must be performed to confirm whether the lessor or lessee is the beneficiary of any SBA available. For leases with a term under 35 years, any SBA would be retained by the lessor.

HMRC expect to issue a consultation response in May 2019 and final legislation later in the year.

Noting that there could be subsequent changes to the drafting, we consider the key impacts of the legislation to be as follows:

  • General impact – taxable investors, owner occupiers, property developers and tax-exempt entities (e.g. pension funds, public sector entities, charities) will all be impacted by this legislation in different ways. This may include retaining construction cost records for a future disposal, performing a detailed SBA analysis or completing an accurate ‘allowances statement’ on disposing of an asset. All taxpayers should ensure they are aware of how the rules affect them to claim the relief where possible and reduce the risk of losing value when disposing of qualifying assets;
  • Opportunity to benefit from additional tax relief – amongst the legislative detail, it should not be forgotten this is a valuable tax relief to qualifying taxpayers who would previously have received no tax relief on such expenditure. As for plant and machinery allowance claims, seeking specialist capital allowances advice on projects qualifying for SBA can help ensure compliance with the legislation and identification of all SBA qualifying expenditure; and
  • Increased administration burden / record keeping – the draft legislation is clear that in instances where relevant asset transactions or development projects take place and appropriate documentation is not retained, claims by current and future owners would be restricted to £nil. To prevent a loss of value during a taxpayer’s holding period, or on disposal, full and complete records of SBA qualifying projects should be retained. This requirement will be particularly onerous for taxpayers with multiple qualifying acquisitions / developments.

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