When submitting returns to HMRC a taxpayer may decide whether the expenditure they incur on their property is classed as revenue or capital.
Generally revenue expenditure is offset against rental income where as capital expenditure is offset against the sale proceeds when the property is sold.
There are also rules on capital allowances on property.
Claiming capital allowances for structures and buildings
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If you build, buy or lease a structure and all construction contracts were signed on or after 29 October 2018, you may be able to claim tax relief.From:HM Revenue & CustomsPublished15 August 2019Last updated3 September 2020 — See all updatesGet emails about this page
Contents
- Applicable rates and allowance period
- What you must use the structure for
- What you can claim the allowance on
- How to claim
- How long you can claim the allowance for
- If your lease is for 35 years or more
- When your allowance may be adjusted
- If you sell the structure
- How the 3% rate of allowance works
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You may be able to claim the structures and buildings allowance tax relief each year on certain money you spend. This allowance may last the whole of the allowance period.
You must have paid some or all the costs towards the purchase, construction or renovation of the structure.
All construction contracts must have been signed on or after 29 October 2018 and the structure must:
- not have been used as a residence the first time it was used or during the period you’re claiming for
- be used for a qualifying activity
- have an allowance statement
If you claim this allowance and the structure is sold or demolished you may have to pay more Capital Gains Tax or Corporation Tax than usual. You should check if claiming the structures and buildings allowance is right for you.
Applicable rates and allowance period
The applicable rate for structures and buildings allowance
| Corporation tax | Rate |
|---|---|
| 29 October 2018 to 31 March 2020 | 2% |
| 1 April 2020 onwards | 3% |
| Income tax | Rate |
|---|---|
| 29 October 2018 to 5 April 2020 | 2% |
| 6 April 2020 onwards | 3% |
The allowance period
The allowance period is the period of time during which a person is entitled to make a claim to the structures and buildings allowance in respect of qualifying expenditure, provided they meet all of the required conditions.
The allowance period is 33 and one third years from the allowance period start date.
The allowance period start date is the later of:
- the date the building is first used for a non-residential purpose
- the date the qualifying expenditure is incurred
What you must use the structure for
The structure must be used for a qualifying activity, which is taxable in the UK.
Qualifying activities are:
- any trades, professions and vocations
- a UK or overseas property business (except for residential and furnished holiday lettings)
- managing the investments of a company
- mining, quarrying, fishing and other land-based trades such as running railways and toll roads
What you can claim the allowance on
If you paid over the market value for a structure or its construction costs, you’ll only be able to claim for the original market value.
You can only claim on construction costs, which include:
- fees for design
- preparing the site for construction
- construction works
- renovation, repair and conversion costs
- fitting out works
If you build or renovate a structure
You can claim on the amount you spent on construction costs, even if you lease the structure from somebody else.
If you buy a structure from a developer
If you buy the structure unused from a developer, you can claim the structures and buildings allowance on the price you paid to the developer, after deducting items you cannot claim for.
If the structure was sold by a developer, has been sold more than once and you’re the first person to use it, you can claim the structures and buildings allowance on the lower of either the price:
- paid to the developer when they sold it
- you paid for the structure
If you buy a used structure from a developer you can claim the structures and buildings allowance on the developer’s construction costs.
If you buy a structure from somebody that is not a developer
If you buy the structure unused and from somebody that is not a developer, after deducting items you cannot claim for, you can claim the structures and buildings allowance on the lower of either:
- the price you paid for the structure
- the original construction cost
If you buy a used structure from somebody that is not a developer, you can claim the structures and buildings allowance on the same amount that the previous owner was entitled to claim.
If any previous owner was able to claim a research and development allowance, you can claim for what is left of the allowance period. But, you cannot claim more than the amount you paid for the structure.
What you cannot claim
You cannot claim on costs:
- for any residence or any structure located in the grounds of a residence
- which also qualify for plant and machinery allowances
- you’ve already used to claim another allowance
- for other items included in the price of the structure, such as land, integral features and fixtures
- for planning permission
- for financing, such as loans
- for public enquiries or legal expenses
- for landscaping or land reclamation
- for which you received a grant or contribution