What replaced the Industrial Buildings Allowance

 

With building (and rebuilding) at the forefront of the government’s post-coronavirus strategy, it’s no wonder that infrastructure is a hot topic right now. The new “build build build” plan from Boris Johnson focuses mostly on creating new homes from the regeneration of vacant and redundant buildings, and it’s being heralded as “the most radical reform to our planning system since the Second World War”.

After the Second World War, it wasn’t just the planning system that changed. In a bid to rebuild the country, the government lowered the cost of construction for businesses by introducing the Industrial Buildings Allowance (IBA). The Industrial Buildings Allowance formed part of the Income Tax Act and it was designed to encourage companies to start building.

Offering tax relief on the cost of constructing a building to be used for manufacturing, the Industrial Buildings Allowance gave projects tax relief for up to 25 years after construction. It first only included buildings but then expanded to include other structures such as walls, tunnels and bridges.

But the Industrial Buildings Allowance was discontinued in 2008, 63 years after its introduction. So for companies looking to begin new building projects now, what tax relief is available?

What replaced the Industrial Buildings Allowance?

Ten years after the abolition of the Industrial Buildings Allowance, a new scheme was introduced that many saw as its direct replacement. The Structures and Buildings Allowance (SBA) was formed in 2018 and applies to the costs of building projects that are incurred on or after 29th October 2018. The commencement of the scheme was relatively complex, and included measures to prevent taxpayers altering existing building projects to fall within the relief.

 

Similar to the Industrial Buildings capital allowance claims, the SBA covers factories, warehouses, bridges and tunnels. But the scheme also covers more modern requirements like office and retail space, allowing a vast number of businesses to claim the relief. The structure or building must be in use (or used within the last two years) in order to claim the annual allowance.

What is the Structures and Buildings Allowance?

The Structures and Buildings Allowance is applicable to a majority of projects, but excludes land and properties for residential use. There are also caveats that deal specifically with property leases, so that landlords and tenants can both claim under the scheme.

When the SBA was introduced, it offered tax relief on new construction expenditure for 50 years at a rate of 2% per annum. However, when the Finance Act 2020 was introduced, it changed the rates of the Structures and Buildings Allowance to 3% of expenditure over 33 and a third years. For the period between October 2018 and April 2020, an additional amount of the 1% hmrc capital allowances can be claimed.

When claiming under the SBA, businesses must identify a ‘chargeable period’, which must either be from the date the business started using the building or from the date the expenditure happened. This includes new owners of structures, who can also claim tax allowances under the scheme as long as the allowance statement is kept up-to-date.