Budget 2018: New tax relief to cut development costs

The government has introduced tax relief on commercial property construction in a bid to attract investment and cut the cost of doing business in the UK. Businesses that incur costs on non-residential developments will be able to claim the new Structures and Buildings Allowance, which provides a deduction from businesses’ profits at an annual rate of 2% over 50 years Relief will be calculated on the original construction costs with the aim of relieving those expenditures over the average life of buildings. The SBA expands the current capital allowances system, which provides relief for plant and machinery that forms a part of buildings – such as air conditioning – but not for the buildings themselves. The government said: “This will improve the UK’s international competitiveness. The UK currently has the lowest corporation tax rate in the G20 – which is set to decrease further to 17% in 2020 – as well as generous tax relief for research and development to support innovation. “The SBA will further reduce the costs of doing business in the UK.” What types of developments are eligible? The SBA was designed to stimulate investment in buildings for commercial use, including conversions or renovations. Land and dwellings will not be eligible for relief. Mixed-use developments will be eligible within the portions that are commercial. Buildings in both the UK and overseas will be eligible as long as the business pays tax within the UK. Who can claim SBA? Any business that is chargeable to income tax and companies chargeable to corporation tax within the UK. What happens if you sell the development? The purchaser takes over the remainder of the allowances. When does the SBA come into effect? Relief will be available for buildings where a contract for construction works is signed on or after 29 October 2018. What happens next? Powers to introduce the SBA are included in the Finance Bill 2018-2019. The government has said the relief will come into force “as soon as possible” but it will continue to consult on a number of issues. These include: The exclusion of residential use – are there specific types of buildings or activities that should be included? In situations where a lease is similar to a sale, such a long lease, at what point should SBA relief be transferred from the landlord to the tenant? At the moment, the government suggests that if a lease is longer than 35 years, tax deductions should transfer over to the tenant. Are specific provisions needed for covering overseas property development? Buildings that are disused for a period of up to five years could still be eligible for relief in certain circumstances. Is there anything that would prevent that policy from working? Consultations will remain open until 31 January 2019. To send feedback, e-mail karl.tomusk@egi.co.uk or tweet @karltomusk or @estatesgazette