What is Structures and buildings allowance (SBA)?
The Structures and buildings allowance (SBA) is a vital UK tax relief that enables businesses to deduct a portion of the cost of constructing or renovating non-residential structures and buildings from their taxable profits. Introduced by HM Revenue & Customs (HMRC) in October 2018, SBA provides a flat-rate allowance, typically 3% per year, on qualifying expenditure over a 33⅓-year period. This allowance is designed to stimulate investment in new commercial properties and significant refurbishments, thereby supporting economic growth by reducing the effective cost of such capital projects. The relief applies to expenditure incurred on or after 29 October 2018, for contracts entered into on or after that date, making it a relatively recent yet impactful addition to the UK’s capital allowances regime.
At Capex Check, we understand that identifying and accurately claiming SBA can be complex due to its specific eligibility criteria and the need for detailed cost apportionment. Our expert team leverages deep knowledge of HMRC guidance to ensure our clients capture every eligible pound. We don’t just tell you what SBA is; we help you implement it, providing a clear path to maximise your tax relief on qualifying construction costs.
Why Structures and buildings allowance (SBA) Matters
The Structures and buildings allowance (SBA) significantly matters because it provides a crucial tax incentive for businesses investing in commercial property, directly reducing their corporation tax or income tax liabilities. Before SBA, capital allowances were generally not available for the structure itself, only for qualifying plant and machinery allowances within it, which created a disincentive for significant construction or renovation projects. The introduction of SBA has been a key policy lever, with the UK government estimating that the measure would cost the Exchequer approximately £100 million in 2020-21, rising to £600 million by 2024-25 (HMRC, 2018), demonstrating its substantial financial impact on businesses and the economy.
For property investors and developers, SBA can dramatically improve project viability and return on investment by accelerating tax relief on large capital outlays. It encourages the development of new commercial spaces and the regeneration of existing ones, contributing to urban development and job creation. Understanding SBA is critical for accurate tax planning and ensuring businesses maximise their eligible deductions, preventing missed opportunities for substantial tax savings on qualifying expenditure. Capex Check’s comprehensive Capital Allowances Reports are specifically designed to uncover and quantify all eligible SBA, ensuring our clients don’t leave money on the table. Our clients frequently report significant improvements in cash flow and project profitability after utilising our services to identify these allowances.
Common Misconceptions About Structures and buildings allowance (SBA)
Despite its importance, several common misconceptions surround the Structures and buildings allowance (SBA):
- Misconception: SBA applies to all property types, including residential.
- Reality: SBA specifically applies to qualifying non-residential structures and buildings. Residential properties are generally excluded, though there are exceptions for certain commercial uses like student accommodation or care homes. Capex Check’s initial assessment process meticulously verifies the property’s use to ensure it meets the strict non-residential criteria, preventing incorrect claims.
- Misconception: SBA is claimed on the full purchase price of a second-hand building.
- Reality: SBA is claimed on the original construction costs of the building, not its subsequent purchase price. Crucially, a buyer of a second-hand property must obtain an ‘allowance statement’ from the seller detailing the qualifying expenditure and the date it was incurred. Without this, claiming SBA can be challenging or impossible. Our team at Capex Check assists buyers in navigating this requirement, often helping to secure the necessary documentation or advising on alternative strategies.
- Misconception: SBA is a type of Plant and Machinery Allowance.
- Reality: While both are capital allowances, SBA is distinct from Plant and Machinery Allowances (P&MAs), which cover items like machinery, equipment, and integral features. SBA specifically addresses the structure or fabric of the building itself, which P&MAs do not cover. Capex Check’s detailed surveys and reports clearly segregate these allowance types, ensuring compliance and maximising relief across all categories.
Structures and buildings allowance (SBA) in Practice
Consider ‘Innovate Ltd.’, a UK-based manufacturing company that completed the construction of a new factory building in April 2022, with qualifying construction costs totaling £5,000,000. Under the Structures and buildings allowance (SBA) rules, Innovate Ltd. can claim an annual allowance of 3% of this qualifying expenditure.
For the first full year of operation (tax year 2022/2023), Innovate Ltd. can claim £150,000 (£5,000,000 x 3%) as an SBA deduction against its taxable profits. This deduction directly reduces the company’s corporation tax liability. For example, if Innovate Ltd.’s taxable profits before SBA were £1,000,000, its taxable profits after SBA would be £850,000. At the corporation tax rate of 25% (as of April 2023 for profits over £250,000), this results in a tax saving of £37,500 (£150,000 x 25%). This allowance continues for 33⅓ years, providing a consistent tax benefit over the asset’s life.
Without SBA, Innovate Ltd. would not have been able to claim any tax relief on the building’s structure, significantly increasing its initial tax burden and impacting cash flow. This demonstrates how SBA provides a long-term, tangible financial advantage for businesses investing in new commercial infrastructure. Capex Check’s “SBA Eligibility Checker” tool helps businesses like Innovate Ltd. quickly understand their potential savings, providing an immediate estimate of the tax relief available.
Related Terms
- Plant and machinery allowances
- Writing-down allowance
- Commercial property capital allowances
- Qualifying expenditure
- Tax relief
Go Deeper
- HMRC Guidance on Structures and Buildings Allowance (/hmrc-guidance-structures-buildings-allowance)
- Claiming SBA on Commercial Property (/claiming-sba-commercial-property)
- SBA Eligibility Checker (/sba-eligibility-checker)
- Comparing SBA with Plant & Machinery Allowances (/sba-vs-plant-machinery-allowances)