The recent autumn budget contained two huge tax incentives for commercial property owners and investors in the UK and is a clear sign Mr Hammond is looking to increase investment within the commercial property sector.
1) Annual Investment Allowance Increase (AIA)
2) Introduction of Structures and Buildings Allowance (SBA)
Annual Investment Allowance Increase (AIA)
The annual investment allowance is set to rise from £200,000 to a massive £1,000,000 from the 01/01/2019, meaning businesses that invest £200,000 plus will receive tax relief significantly faster for new plant and machinery.
Plant and machinery within a commercial property that qualifies for capital allowances under the £1,000,000 AIA includes heating and ventilation systems, electrical and lighting installations, kitchen and bathroom suites, ironmongery and more.
Utilising the AIA is a massive boost for any business and claiming under the proposed new amount could leave many SME's completely tax free for years to come.
Introduction of Structures and Buildings Allowance
The Chancellor announced at the Budget that the government will introduce a new Structures and Buildings Allowance (SBA) for new non-residential structures and buildings. Relief will be provided on construction costs incurred on or after 29 October 2018, at an annual rate of two percent on a straight-line basis.
The aim of the SBA is to relieve the costs of physically constructing new structures and buildings. This will encourage investment in the construction of new structures and buildings that are intended for commercial use, the necessary works to bring them into existence and the improvement of existing structures and buildings, including the cost of converting existing premises for use in a qualifying activity. These assets are currently depreciated in many businesses’ accounts, but until now without tax relief being given on the expenditure.
Structures and buildings include offices, retail and business premises, walls, bridges, tunnels, factories, warehouses and more. Capital expenditure on renovations or conversions of existing commercial structures or buildings will also qualify.
Businesses will be able to claim a 2% flat rate allowances for a maximum of 50 years but any tax relief identified will not fall under the AIA. This relief will also extend to businesses that incur expenditure on buildings and structures overseas where the business is subject to UK tax.
As you can see from the above this is an extremely complex area of taxation but also massively beneficial to all UK businesses and property investors. We advise that you take specialist advice when completing a claim for both plant and machinery allowances and the newly introduced structures and buildings allowance as no doubt HMRC will be keeping a close eye on the initial SBA claims submitted.
If you would like further advice on the above then please contact the partners of James Nazir & Co who will be happy to assist.
Link to HMRC technical document
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