If you build, buy or lease a structure and all construction contracts were signed on or after 29 October 2018, you may be able to claim tax relief.
You may be able to claim a 2% tax relief a year, on certain money you spend. This allowance may last up to 50 years.
From April 2020 the rate increased to 3% and the period reduced to 33 and one third years.
You must have paid some or all the costs towards the purchase, construction or renovation of the structure.
All construction contracts must have been signed on or after 29 October 2018 and the structure must:
- have not been used as a residence the first time it was used or during the period you’re claiming for
- be used for a qualifying activity
- have an allowance statement
If you claim this allowance and the structure is sold or demolished you may have to pay more Capital Gains Tax or Corporation Tax than usual. You should check if claiming the structure and buildings allowance is right for you.
What you must use the structure for
The structure must be used for a qualifying activity, which is taxable in the UK.
Qualifying activities are:
- any trades, professions and vocations
- a UK or overseas property business (except for residential and furnished holiday lettings)
- managing the investments of a company
- mining, quarrying, fishing and other land-based trades such as running railways and toll roads
What you can claim the allowance on
If you paid over the market value for a structure or its construction costs, you’ll only be able to claim for the original market value.
You can only claim on construction costs, which include:
- fees for design
- preparing the site for construction
- construction works
- renovation, repair and conversion costs
- fitting out works
If you build or renovate a structure
You can claim on the amount you spent on construction costs, even if you lease the structure from somebody else.
If you buy a structure from a developer
If you buy the structure unused from a developer, you can claim 2% per year on the price you paid to the developer, after deducting items you cannot claim for.
If the structure was sold by a developer, has been sold more than once and you’re the first person to use it, you can claim 2% per year on the lower of either the price:
- paid to the developer when they sold it
- you paid for the structure
If you buy a used structure from a developer you can claim 2% per year on the developer’s construction costs.
If you buy a structure from somebody that is not a developer
If you buy the structure unused and from somebody that is not a developer, after deducting items you cannot claim for you can claim 2% per year on the lower of either:
- 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 2% per year on the same amount that the previous owner was entitled to claim.
If the previous owner was able to claim a research and development allowance, you can claim for what would be left of the 50 years. But, you cannot claim more than the amount you paid for the structure.
What you cannot claim
You cannot claim on costs:
- for any residence or any structure located in the grounds of a residence
- which also qualify for plant and machinery allowances
- you’ve already used to claim another allowance
- for other items included in the price of the structure, such as land, integral features and fixtures
- for planning permission
- for financing, such as loans
- for public enquiries or legal expenses
- for landscaping or land reclamation
- for which you received a grant or contribution
How to claim
You must claim on your tax return.
You’ll need an allowance statement for the structure. If you’re the first person to use the structure, you must create a written allowance statement before you can make a claim.
Your allowance statement must include:
- information to identify the structure, such as address and description
- the date of the earliest written contract for construction
- the total qualifying costs
- the date that you started using the structure for a non-residential activity
If you buy a used structure, you can only claim the allowance if you get a copy of the allowance statement from a previous owner.
For any extensions or renovations that were completed after you started using the structure, you can record separate construction costs on the allowance statement or create a new allowance statement.
You’ll need to keep information about the earliest construction contracts in your records. You can use things like formal contracts, emails or board meeting notes.
Select the start date of your claim
Start your claim from whichever is later:
- the date when you started using the structure for a qualifying activity
- the date that you’re due to pay for the structure or construction
You can choose to group additional qualifying costs together and start your claim for these costs on the first day of your next accounting period.
How long you can claim the allowance for
You can claim for up to 50 years, starting from the date that the structure comes into non-residential use. From April 2020 the rate increased to 3% and the period reduced to 33 and one third years.
You can continue claiming the 2% per year allowance for the rest of the 50 years if:
- you buy a structure from another person who has already claimed
- you use the structure for a qualifying activity
- the structure is out of use following a period in which you used it for a qualifying activity
If your lease is for 35 years or more
If the person you lease the structure from has qualifying costs, you can claim the 3% a year allowance for the rest of the 33 and one third years, if the value of their interest in the structure is less than one third of the capital you paid for it.
From April 2020 you can continue claiming the allowance if you’ve taken over someone else’s lease within the 33 and one third years allowance period.
If neither of these situations apply, the lessor may claim the remaining allowance.
Your allowance may be adjusted
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
The allowance can be reduced or increased depending on the amount of days in your accounting period.
If you sell the structure
When you sell or dispose of the structure your allowances will stop. Pass on a copy of the allowance statement to the new owner so that they can claim any remaining allowances.
If the structure is sold, demolished or used for anything other than a qualifying activity, your claim will end.
You may have to pay more Capital Gains Tax or Corporation Tax, because you must add the total amount of structure and buildings allowance you’ve claimed to the amount you receive to calculate your capital gain or loss.
How the 3% rate of allowance works
If your business is subject to:
- Corporation Tax, you may claim 3% a year from 1 April 2020 on qualifying costs and the allowance period will end 33 and one third years from the date the structure comes into use
- Income Tax, you may claim 3% a year from 6 April 2020 on qualifying costs and the allowance period will end 33 and one third years from the date the structure comes into use
If your chargeable period for capital allowances starts before 1 April or 6 April, apportion the period and claim 2% a year for each day before 1 April or 6 April and 3% a year for each day on or after.
You built a factory costing £900,000. All the contracts for works were entered into on 7 January 2019.
The factory was completed on 21 November 2019 and you started to use it in your engineering business from 1 December 2019. You prepare accounts for each year ending on 31 December.
In your chargeable period to 31 December 2020, you can claim 2% a year for 96 days from 1 January 2020 to 5 April 2020, and 3% a year for 270 days from 6 April 2020 to 31 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 31 December 2020.
Keep a note of all the days you claimed the 2% rate in this period or an earlier period. If you do not sell or dispose of the structure within 33 and one third years from when it first came into use, you may claim for any shortfall in allowances at the end of that time.