Structures & Buildings Allowance and 130% Super Deduction

Simon Misiewicz

Simon Misiewicz

Expat & Property Tax Specialist

5th March 2022

Capital Allowances for structures & buildings allowance

Before we get into the detail it is worth highlighting that both structures/buildings allowance and the 130% super deduction are a form of capital allowances. We previously wrote an article about capital allowances and how they can help you reduce property tax. This article will also show you the benefits of investing in commercial property.

HMRC updated the capital allowance for structures and buildings on 3rd September 2020.

What is the criteria for the structures and building allowance?

You will be able to claim on the structures and building allowance if you

– Have spent money in the current year

– You must have paid some or all the costs towards the purchase, construction or renovation of the structure

– not have been used as a residence the first time it was used or during the period you’re claiming

– The building must be used for trade, profession or vocation activities

– the UK or overseas (again, only if it is non-residential and used in a trading activity)

If you claim this allowance and the structure is sold or demolished, you may have to pay more Capital Gains or Corporation Tax than usual.

You should check if claiming the structures and buildings allowance is right for you.

What is the allowable capital allowances claim on the structures and building allowance?

You can only claim on construction costs, in the structures and building allowance which include:

– fees for design

– preparing the site for construction

– construction works

– renovation, repair and conversion costs

– fitting out works

– A claim has been made under a different allowance for the property in question

– Cannot be claimed here if it is claimed under plant & machinery

– Other items included in the price of the structure, such as land, integral features and fixtures

– Planning permission

– Finance costs (loans or interest)

– Public enquiries or legal expenses

– Landscaping

– Where you have received a government grant

You can claim the amount you spent on construction costs, even if you lease the structure from somebody else.

The value of the structures and buildings will also vary

– Bought the property from the developer. You claim the lower of:

– – paid to the developer when they sold it

– – you paid for the structure

– Bought the property from someone that is not a developer you claim the lower of:

– – the price you paid for the structure

– – the original construction cost

If you buy a used structure from somebody that is not a developer, you can claim the structures and buildings allowance on the same amount that the previous owner was entitled to claim.

– Corporation Tax

– – 2% for money spent during the period 29th October 2018 and 31st March 2020

– – 3% for money spent after 1st April 2020 onwards

– Income Tax

– – 2% for money spent during the period 29th October 2018 and 5th April 2020

– – 3% for money spent after 6th April 2020 onwards

How does it work in practice?

The allowance period is 33 and one-third years from the start date.

The allowance period start date is the later of:

– the date the building is first used for a non-residential purpose

– the date the qualifying expenditure is incurred

The Capital Allowances claims will be done on your next tax-return. It is vital to ensure that the disclosure is clear to the authorities with the below in mind

– Allowances claimed

–  Date the building was purchased and claimed for

– The rate of claim

– Details of what the building is used for to be clear that meets the conditions above

Your allowance is adjusted if:

– Your accounting period is more or less than a year

– All conditions are not met on every day of your accounting period

– Your entitlement ends during your accounting period

– The structure is used for more than one activity

Claim capital allowances to reduce your tax bill

Complete our online form to see if Capital Allowances may be claimed against your tax bill when investing in commercial buildings, holiday lets or serviced accommodation

Complete the form here

Example of the structures and buildings allowance working in practice

You built a factory costing £900,000. All the contracts for works were entered into on 7th January 2019.

The factory was completed on 21st November 2019, and you started to use it in your engineering business from 1st December 2019. You prepare accounts for each year ending on 31st December.

In your chargeable period to 31st December 2020, you can claim 2% a year for 96 days from 1st January 2020 to 5th April 2020 and 3% a year for 270 days from 6th April 2020 to 31st December 2020.

96/366 × £900,000 × 2% = £4,722

Plus 270/366 × £900,000 × 3% = £19,919

Total claim £24,641 for the year ended 31st December 2020.

Keep a note of all the days you claimed the 2% rate for this or an earlier period. If you do not sell or dispose of the structure within 33 and one-third years from the start of the allowance period, you may claim for any shortfall in allowances at the end of that time.

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130% Super Deduction

A new ‘super deduction’ capital allowance was created in the March 2021 budget announcement. HMRC created a factsheet and guidance.

From 1st April 2021 until 31st March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:

– a 130% super-deduction capital allowance on qualifying plant and machinery investments

– a 50% first-year allowance for qualifying special rate assets

What is plant and machinery?

Most tangible capital assets used in the course of a business are considered plant and

machinery to claim capital allowances.

There is not an exhaustive list of plant and machinery assets. The kinds of assets which may

qualify for either the super-deduction or the 50% FYA include, but are not limited to:

– Solar panels

– Computer equipment and servers

– Tractors, lorries, vans

– Ladders, drills, cranes

– Office chairs and desks,

– Electric vehicle charge points

– Refrigeration units

– Compressors

– Foundry equipment

Example

A company incurring £1m of qualifying expenditure decides to claim the super-deduction

Spending £1m on qualifying investments will mean the company can deduct £1.3m

(130% of the initial investment) in computing its taxable profits

Deducting £1.3m from taxable profits will save the company up to 19% of that – or

£247,000 – on its corporation tax bill.

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