As part of the Spring Statement, HMRC and the Treasury have published a consultation seeking views on draft legislation for non-residential structures and buildings capital allowance, which provides relief on eligible construction costs incurred on or after 29 October 2018
As outlined at Budget 2018, relief will be provided on eligible construction costs incurred on or after 29 October 2018, at an annual rate of 2% on a straight-line basis and is intended to address a gap in the current capital allowances system. The structures and buildings allowance is an entirely new relief and is not clawed back on a sale and the benefit of any unused allowance can transfer to a new buyer.
The consultation closes on the draft secondary legislation closes 24 April 2019 and an overall response to consultation responses will be published in May 2019. The final, published version of the legislation will be in the format of a Statutory Instrument.
Responses to consultation suggested that provisions on disuse could give rise to onerous calculations and significant record keeping obligations for businesses. Many argued that, with little commercial incentive to keep buildings unoccupied, long periods were unlikely to arise in practice.
Therefore, the government has outlined that relief will instead continue to be available, with no prohibition for periods of disuse. This approach ensures legitimate expenditure remains recognised and avoids deterrence or reduction of potential investment.
Another problem area flagged in the original consultation was demolition. Demolition would usually be considered a disposal event for capital gains purposes. Any unrelieved expenditure would therefore be claimed as a deduction in arriving the capital gains computation. This would avoid businesses having to continue with ‘shadow’ structures and buildings allowance claims, after the structure or building has been demolished or where interest in land may have expired, while at the same time ensuring investors remain able to claim relief for all qualifying construction costs.
In the case of leased buildings, where the term of the lease is not more than 35 years, all the allowances will stay with the lessor. Where leases exceed 35 years, and the amount paid as a capital sum for a lease (including the element of a lease under 50 years allocated to capital) is 75% or more of the sum of that capital amount and the value of the retained interest in the property, the relevant interest is transferred to the lessee.
The Chartered Institute of Taxation (CIOT) has previously called the new relief ‘too complex’. CIOT points out that while a report from the Office of Tax Simplification (OTS) recommended widening the scope of capital allowances to include the expenditure on buildings that will now qualify for the structures and buildings allowance, it also recommended reducing, or at least not increasing, the different types of expenditure and classes of assets that have to be identified for tax purposes, as distinct from the treatment of that expenditure/assets in the accounts, in order to simplify the regime overall.
CIOT argues the structures and buildings allowance does the opposite by creating new categories of expenditure – separately for the structure or building, and then for any subsequent capital expenditure on it - which will have to be identified and tracked for tax purposes.
Report by Amy Austin
