Allowance statement 'vital' for claiming new UK building tax allowances

Property tax expert Richard Croker of Pinsent Masons, the law firm behind Out-law.com, said:"It will be particularly important for tax exempt investors, such as pension funds and insurance companies, to ensure this statement is created when they acquire newly built property or develop property themselves. This will enable them to pass the benefit of the allowances on when they sell the building, adding to the value of their investment," he said.

"If they don't create the statement when they acquire the property and retain the necessary evidence, it may be difficult to obtain all the necessary information at a later date. Without the statement a future buyer cannot claim the allowances," Richard Croker said.

A new 2% structures and buildings allowance (SBA) is available in the UK for expenditure on the purchase, construction or renovation of non-residential buildings and structures, provided the expenditure is incurred on or after 29 October 2018 under construction contracts signed on or after that date. Expenditure must be on the construction or acquisition of non-residential structures and buildings. The structure must be used for a qualifying activity, which is taxable in the UK. Qualifying activities include trades and professions or a UK or overseas property business.

SBAs are available at the rate of 2% per year on a straight-line basis over 50 years. They are claimed on a tax return, but can only be claimed if you have an 'allowance statement'. The first person to use the structure must create a written allowance statement which 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 and the date the structure started to be used for a non-residential activity.The buyer of a used structure will only be able to claim allowances if they get a copy of the allowance statement from the previous owner, before the claim for SBAs is made. The new allowances were announced in the October 2018 Budget, with a technical note setting out brief details of what they would cover.  The regulations bringing the allowances into effect were only published in July. 

"There are a few areas where we are waiting for more detailed guidance from HMRC. One particular area of difficulty is that the regulations provide that SBAs are only available if all construction contracts were signed on or after 29 October 2018. It is not clear how this should be interpreted in the case of a phased development, where an overarching contract may be signed early on (before 29 October 2018), but perhaps detailed contracts in relation to later phases  would be signed after 29 October 2018," Richard Croker said. 

"It seems very harsh if SBAs would not be available in this case, perhaps where the detailed contract was signed years after 29 October 2018," he said.