The newly introduced SBA regime allows a taxpayer to claim on capital expenditure incurred on commercial property construction, refurbishments and fit-outs, as a 2% straight line deduction against taxable profits over 50 years.
Previously, expenditure on structure and buildings was classed as non-qualifying for capital allowances purposes but the introduction of the SBA regime will change this. Qualifying entities will now have the ability to claim capital allowances on plant and machinery as well as SBA on building works but excluding alterations to land.
However, SBA will interact with capital gains tax, in that the base cost for CGT will be lowered by the amount of SBA claimed. Depending on the tax rate of the entity claiming, this will result in either full or partial claw back upon disposal.
Careful consideration should be given when claiming under the SBA if you expect to realise a gain upon disposal. This is even more relevant if you are looking to hold the investment for a longer period of time as property prices usually go one way, up!
Other Key Points of the SBA
1) Claims have to made in the year the expenditure is incurred
2) Can not be claimed under the annual investment allowance
3) Is only available on construction contracts entered into on or after the 29th October 2018.
4) Cannot be claimed on residential buildings
Its not all doom and gloom though as there is no doubt that claiming under the SBA will help further mitigate current and future tax liabilities and in turn will create cash flow headroom year on year which will be welcomed by most business owners.
If you have any questions in relation to the SBA regime, feel free to get in touch and we will be happy to run you through the details.
James Nazir Limited