Structures and Buildings Allowance: The Commercial Property Relief

1. What SBA Does

The Structures and Buildings Allowance was introduced in the 2018 Budget and applies to qualifying construction costs contracted on or after 29 October 2018. It gives a 3% straight-line annual deduction on the qualifying cost, writing off the full amount over roughly 33 years and four months. Before SBA, the construction cost of a commercial building had no tax relief at all, the building simply sat on the balance sheet until sale.

SBA is available to companies, partnerships, LLPs and sole traders. It applies to commercial property used for a qualifying activity, typically trading or investment letting to commercial tenants. Residential use is excluded in almost all cases.

2. Qualifying Costs

Qualifying costs include new construction, extensions and structural improvements to non-residential buildings. They cover the physical structure itself, including foundations, walls, floors and roof, along with associated site preparation, professional fees directly attributable to the qualifying construction, and legal costs of the work.

Conversion or renovation work on existing non-residential buildings can also qualify, provided the work is capital in nature rather than a simple repair. A conversion of an empty retail unit into an office, for example, would typically generate SBA-qualifying costs alongside plant and machinery allowances for the fit-out items.

3. Costs Excluded from SBA

• Land: the land itself is not a qualifying cost. Only construction and improvement are covered.
• Residential use: buildings used for dwellings, furnished holiday lets, and other residential activities do not qualify.
• Plant and machinery / integral features: these are claimed separately under the P&M rules, and usually at a far better rate than 3%. Do not pool them with SBA.
• Pre-29 October 2018 contracts: the SBA regime applies only to work contracted from that date.
• Financing costs: interest and similar finance costs are not part of qualifying SBA cost.

4. Splitting Construction Invoices

The single most valuable piece of work on a commercial construction project is analysing the cost between SBA (3%), P&M main pool (18%, or 100% AIA / Full Expensing), and integral features (6%, or AIA / 50% FYA). A £1 million commercial fit-out might split roughly 40% SBA / 35% P&M / 25% integral features, depending on the mix of work.

Leaving the full invoice in SBA means 3% a year for 33 years. Correctly analysing it into P&M and integral features where applicable typically accelerates several hundred thousand pounds of relief into the early years. The analysis is straightforward where the builder has itemised the invoice; it requires a capital allowances review where the invoice is a single lump-sum figure.

5. The Allowance Statement

SBA is claimed only if an Allowance Statement exists. The statement is a written record of the qualifying cost, the date the building was first brought into non-residential use, and the claimant. No statement, no claim, this is absolute, not negotiable. It also travels with the building on sale: a subsequent purchaser takes over the remaining SBA pool and needs the statement to continue the claim.

For a newly constructed building, the Allowance Statement should be prepared as part of the capital allowances review at the end of the construction project, filed with the underlying invoices, and referenced in each subsequent tax return. The same document should be made available to any future purchaser as part of the legal pack on a later sale.

6. Sale of the Building

On sale, the purchaser takes over the remaining SBA pool. There is no balancing charge for the seller on the SBA, unlike P&M, where sale proceeds are compared to the pool balance and a balancing adjustment arises. The seller simply stops claiming; the buyer continues the 3% over the unused remainder of the original 33-and-a-bit year period.

This matters on a property sale: the buyer's ability to continue claiming depends entirely on the quality of the Allowance Statement. A property with a missing or incomplete statement loses the ongoing SBA on sale, which reduces the property's after-tax value to a buyer. Proper record-keeping is a commercial issue, not just a tax compliance one.