Category: Updates

If you have built, bought or leased a structure, and the contracts were signed after 29th October 2018, you might be eligible to claim tax relief. Claiming capital allowances for structures and buildings can improve your financial health by reducing your taxable profits.

In this article, we will explore what capital allowances are, guide you through the structures and building allowance (SBA) claiming process, and delve into what you can and can’t claim for through the SBA.

What are capital allowances?

Capital allowances are an expenditure that individuals and businesses may be able to claim against taxable profit. You can claim capital allowances on items and assets purchased for use within your business that are essential to run it successfully.

In terms of capital allowances for structures and buildings, if your business built, bought or leased a structure after 29th October 2018, you may be able to claim Structures and Buildings Allowance (SBA). This allowance allows businesses to deduct a percentage of the expenses spent to construct or renovate non-residential structures and buildings from their taxable profits. 

What is Structures and Buildings Allowance?

Structures and Buildings Allowance (SBA) is a form of tax relief introduced by the UK government in October 2018 that allows businesses to claim a deduction for the money spent during the construction, renovation, or conversion of non-residential structures and buildings. Between October 2018 and March 2020, the applicable rate was 2%. However, from April 2020 onwards, this rate has risen to 3%. 

What is the criteria to claim Structures and Buildings Allowance?

There are a number of different criteria that your building or structure needs to meet in order to be able to claim capital allowances. These include:

      • You must have paid at least some of the costs towards the purchase, construction or renovation of the structure
      • All contracts must have been signed on or after 29th October 2018
      • The building cannot have been used as a residence the first time it was used or during the period that you’re claiming for
      • It must be used for a qualifying activity
    • It has to have an allowance statement

What counts as a qualifying activity for Structures and Buildings Allowance?

To be able to claim capital allowances against your structure or building, it needs to be used for a qualifying activity that is taxable in the UK. These include:

      • A trade, profession or vocation
      • Managing the investments of a company
      • Land-based trades such as running railways
    • Mining, quarrying or fishing

What is an allowance statement?

An allowance statement is a written statement that proves that you are eligible to claim capital allowances against your structure or building. If you’re the first person to use the structure, you must create this document before you can make a claim. For a pre-used structure, you have to get a copy of the allowance statement for a previous owner before you are able to make a claim.

The allowance statement must include:

      • Information that identifies the building
      • The date of the earliest contract for the construction of the building
      • The total qualifying costs
    • The date that the building was first brought into non-residential use

The costs of any changes made to the structure of the building after you started using it can either be recorded on the original allowance statement, or on a new one that you create.

What can Structures and Buildings Allowance be claimed on?

We’ve already talked about the criteria that you must meet in order to be eligible to claim for SBA, and what the qualifying activities are, but let’s explore what costs you can claim the allowance on!

You are only allowed to claim on any construction costs, including:

      • Architectural design fees
      • Anything spent to prepare the site for construction
      • The construction work itself
      • Any renovation, repair and conversion costs
    • Fitting out works

What you can claim varies depending on where you are in the property chain. For example:

If you were the company that built or renovated the structure, you are able to claim on the amount you spent for construction, even if you lease the building from another person. 

If you have bought the structure unused from a developer, you are able to claim the Structures and Building allowance on the price you paid the developer, minus any items you can’t claim for. However, if you paid over the market value for a structure or its construction expenses, you’ll only be able to claim for the original market value.

If the structure has been sold by a developer more than once but you’re the first person to use it, you can claim on whichever is lower:

      • The price paid to the developer when they sold it
    • The price you paid for the structure

If you purchase a used structure from a developer, you can claim the SBA on the developer’s construction costs.

If you buy the structure unused from someone that isn’t a developer, after deducting items you can’t claim for, you can claim on whichever is lower:

      • The price you paid for the structure
    • The original construction cost

If you buy a used structure from someone that isn’t a developer, you can claim the SBA on the same amount that the previous owners were entitled to claim.

What can you not claim Structures and Buildings Allowance on?

Whilst there are a large amount of costs that SBA can be claimed on, there are a number of things that you cannot claim on, including:

      • Costs for any residence or structure located on the grounds of a residence
      • Costs that also qualify for plant and machinery allowances
      • Expenses you’ve already used to claim on a different allowance
      • Money spent on other things included in the price of the building, such as land and integral fixtures and features
      • Costs of planning permission
      • Loans or other financing costs
      • Expenses for public enquiries or legal fees
      • Cost of any landscaping
    • Costs that you received a grant or contribution

How to claim capital allowances for structures and buildings

As we’ve already mentioned, SBA can be claimed at 3% of your qualifying expenditure and can be claimed for 33.33 years. Unlike plant and machinery items, there is no annual investment allowance.

You have to claim your SBA on your tax return, and you must attach your allowance statement. You can start your claim either from the date that you started using the structure for a qualifying activity, or the date that you’re due to pay for the building or its construction – whichever is later. 

If your expenses occur partway through an accounting period, you have two choices: either claim in the same year by doing time-apportionment, or start a full claim from the next accounting period.

What happens when the structure is sold?

If you sell or dispose of the structure, your allowances will stop. Make sure that you give a copy of the allowance statement so they can claim any remaining allowances. However, if your structure is demolished or sold to be used as something that doesn’t count as a qualifying activity, the claim will end.

When you get rid of the building that you have claimed the SBA on, you may have to pay more Capital Gains Tax or Corporation Tax. This is because you must add the total amount of Structures and Buildings Allowance you’ve claimed to your disposal receipts to calculate your capital gain or loss.

How Eureka Capital Allowances can help

At Eureka, our team of Capital Allowances Consultants have over two decades of experience in helping business owners unlock thousands of pounds of hidden tax relief in their buildings and structures.

Browse our services or contact us today to discover how we can help you.

Despite strong lobbying since the Spring Budget, the abolition of the FHL tax regime will go ahead as planned from April 2025 following policy papers published on the 29th of July. 

This comes as a major blow to many FHL owners who see beneficial tax treatments and advantages lost, when the industry is already reeling in some parts of the UK with various determining factors to their business that sit outside of their control. 

New changes will remove the tax advantages that current furnished holiday let landlords have received over other property businesses in four key areas by:

  • Applying the finance cost restriction rules so that loan interest will be restricted to basic rate for Income Tax.
  • Removing capital allowances rules for new expenditure and allowing replacement of domestic items relief.
  • Withdrawing access to reliefs from taxes on chargeable gains for trading business assets.
  • No longer including this income within relevant UK earnings when calculating maximum pension relief.

As we know the changes will come into effect from 1st April 2025 for property company owned and 6th April 2025 for individuals. 

Offering some room for optimism, was the Transitional Rules relating to Capital Allowances which are still favourable to FHL owners. 

Quite simply, as it stands, if a capital allowances claim is made before April 2025, then any unused pools or losses can continue to be claimed beyond that date and utilised as means as reducing their FHL profits until the pool is exhausted. This will potentially generate savings for many years beyond April 2025 for owners. 

There were fears that this benefit would come to an end, but after April 2025, former furnished holiday let properties will form part of the person’s UK or overseas property business and be subject to the same rules as non-furnished holiday let property businesses.

If you own an FHL, now is the time to seek advice on claiming your capital allowances before it is too late. Owners have until April 2025 to claim their allowances, or this valuable benefit will be lost forever.

More information can be found on the Gov.uk website.

Owning a furnished holiday let (FHL) offers generous tax incentives that many owners are unaware of. One of the most advantageous are capital allowances, and from April 2025 these look set to be abolished for FHLs. In this article, we will explore what a furnished holiday let is, what capital allowances are, and what owning an FHL means for your tax and capital allowances.

What is a furnished holiday let?

A furnished holiday let (FHL) is a type of short-term rental accommodation that can be used as a lucrative way for people to earn additional income. It is seen as a business for tax purposes. However, there are several different criteria that has to be met in order for the short-term rental to be considered an FHL for tax purposes:

  • It has to have been bought with the intention of being let commercially and making a profit.It has to be available to let for at least 210 days out of the year, and actually let for 105 days out of the year.
  • It must be located in the UK or the European Economic Area.
  • There has to be enough furniture provided for normal occupation.
  • The property cannot be let to the same person for more than 31 days consecutively.
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If this criteria isn’t met, the income made from the FHL will be treated as if it were from a Buy-to-Let, and you will not be able to claim capital allowances.

What are capital allowances?

Capital allowances are a type of tax relief that businesses can claim on certain types of capital expenditure, including assets they acquire for use in their trade or business. They provide tax relief on the reduction in value of ‘plant and machinery’ assets. In the context of holiday lets, ‘plant and machinery assets’ means the fixtures, fittings and furniture essential to the running of your business. Unbeknown to many FHL owners, however, is that they can also claim on items that were already in their property when it was purchased.

Capital allowances enable FHL owners to deduct the value of specific assets and items from their profits, in turn reducing their tax liability.

Instead of deducting the full cost of these assets from their taxable income in the year of purchase, businesses can spread the cost over several years, or choose to offset the full amount of certain assets in the first year through an Annual Investment Allowance.

You aren’t able to claim capital allowances for Buy-to-Lets, as HMRC class these as an investment, rather than a trading business.

However, legislation is changing, and from April 2025, owners of furnished holiday lets will no longer be able to claim capital allowances!

What counts as ‘plant and machinery assets’?

As we mentioned above, you can claim capital allowances on ‘plant and machinery assets’. But what counts as ‘plant and machinery’?

According to gov.uk, plant and machinery includes:

  • Items that you keep to use in your business – in FHLs, this can include furniture, sanitary ware, white goods and appliances, and carpets
  • Costs of demolishing plant and machinery
  • Fixtures, for example fitted kitchens or bathroom suites, heating and electric systems
  • Alterations to a building to install plant and machinery – this does not include repairs, but can include extensions or reconfiguring the layout to install additional assets

What doesn’t count as ‘plant and machinery assets’?

Now that you have a bit of an idea of what is included under the ‘plant and machinery assets’ category, you might be wondering what it doesn’t include.

You can’t claim plant and machinery allowances on:

  • Leased items, unless you have a hire purchase contract or long funding lease
  • Anything only for business entertainment, such as a yacht or karaoke machine
  • Land
  • Structures, such as roads, docks or bridges
  • Buildings, including doors, gates, shutters, or mains water and gas systems

When can you claim capital allowances on your holiday let?

If your FHL property is new – either you have built a new FHL property or converted an existing property into a furnished holiday let, you are able to claim capital allowances on the eligible assets bought for that property. These can be claimed in your self-assessment tax return if you’re a sole trader, or in your company accounts if you operate as a company.

If you have purchased an existing FHL, or residential property that hasn’t previously claimed full capital allowances, you are able to claim these during the purchase of the property through a Section 198 Election.

How to make a capital allowance claim for holiday lets

Making a capital allowance claim typically requires the expert eyes of surveyors and capital allowances specialists. It involves several steps and different considerations that you need to be aware of:

  • Keep detailed records: Keep records of all capital expenditure related to your holiday let, including invoices, receipts, and documentation of any assets that you have bought.
  • Identify qualifying assets: Identify the ‘plant and machinery’ assets within the property that qualify for capital allowances – furniture, kitchen equipment, furnishings, and fixtures.
  • Submit the claim: Include the capital allowance claim as part of your tax return or submit it separately according to the requirements of your tax authority. Ensure that all necessary documentation and supporting evidence are provided with the claim.
  • Check your property is eligible: We’ve already run through the criteria that your holiday let accommodation needs to meet in order to qualify for capital allowances. Check your property against this criteria to ensure that it qualifies for capital allowances
  • Seek professional advice: Consider seeking advice from an accountant or professional capital allowances advisor. They will be able to help ensure that you maximise your claim while complying with tax laws.

How Eureka Capital Allowances can help

At Eureka, we have a team of Capital Allowances Consultants with over 20 years’ of experience, helping business property owners unlock thousands of pounds of hidden tax relief in their property.

Contact us today to discover how we can help you.

Eureka recently attended the Hoseasons Conference held at the magnificent Celtic Manor Resort on the 7th and 8th of November 2023. A gathering of 700 property owners, the event was not only a celebration of accomplishments but also an opportunity for industry leaders to come together and share insights. Eureka, being at the forefront of innovation, made a significant impact at the conference, and here’s a glimpse of what you can expect when you visit our stand at future events.

Expert Insights: Unlocking the Power of Capital Allowances

One of the highlights at the Eureka stand is our team of specialists who are ready to provide invaluable insights into capital allowances. Whether you’re a seasoned property owner or just starting in the industry, our experts will be on hand to answer any questions you may have. Capital allowances can be a complex subject, and our team is dedicated to making it accessible and understandable for all.

Free Review: Maximising Your Property’s Potential

Bring your property information to our stand, and we’ll offer you a complimentary review. Our goal is to assess potential capital allowances that you may be eligible for, helping you unlock hidden value in your property investments. This free review is our way of giving back to the community and supporting property owners in maximising their returns.

Networking: Building Connections in the Industry

Eureka’s presence at the Hoseasons conference was more than just a participation – it was an opportunity for us to connect with you, our community. As we look forward to future events, we invite you to join us at our stand, where expertise, complimentary reviews, and networking opportunities await. Eureka is not just a name; it’s a commitment to supporting property owners on their journey to success.

Stay tuned for more updates and see you at our next event!