The Structures and Buildings Allowance (SBA) is a UK capital allowance giving 3% annual tax relief on qualifying non-residential construction and renovation costs, spread over 33⅓ years from first use. It applies where all construction contracts were entered into on or after 29 October 2018, and claiming it requires a written allowance statement.
This guide covers who can claim, which construction, renovation and professional costs count as qualifying expenditure, and what's excluded such as land, planning permission and assets that qualify for Plant and Machinery Allowances instead. It also explains how VAT affects the amount you can claim, what happens to the allowance when a building is sold or leased, the Capital Gains Tax clawback on disposal, and the enhanced 10% rate available at Freeport and Investment Zone tax sites.
Who can claim an UK Structures and Buildings Allowance
Businesses meeting the below criteria can claim capital allowances on building or structure:
Additionally, the building must be used by the claimant for qualifying activities. This covers trades, professions, vocations, and UK or overseas property rental businesses, but not a furnished holiday lettings business or the letting of residential property. If you run serviced accommodation or holiday lets, non-residential structures within that business will not qualify for SBA unless they also serve a separate qualifying activity. (CAA 2001, s.270CA, 270CB, 270CD)
Note:
- SBA is available for commercial building or structure, but not for the residential ones.
- For a building partly used for residential and partly for commercial purpose, SBA applies only on the commercial part.
- If you start using the building for residential purpose, you should stop claiming SBA.
What Are the Qualifying Expenditure for SBA
Capital expenditure incurred in commercial building qualify for SBA. It includes cost of acquiring a building as well as the cost of constructing (renovating, extending, or refurbishing) the existing building.
Note: Certain costs like the cost of purchasing land (including SDLT, legal fees, seeking planning permission) is not eligible and must be deducted from total eligible cost.
Qualifying Expenditure - Construction Cost
Cost of making a building, preparing the land for construction or demolition, renovation cost and incidental repair etc are qualified for SBA. SBA is also available on survey and design costs of a constructed building.
Costs related to land like restoring or cleaning de-contaminated or derelict land, landscaping etc do not qualify and should be excluded (unless such costs are essential before construction is carried out).
Tracking The Refurbishment or Renovation Expenditure
Capital expenditure like refurbishment or renovation must be tracked properly. Sometimes, refurbishment or renovation work starts in one year and completes in the next. No need to split cost between two periods and SBA on whole can be claimed in either of the years.
Suppose Matthew has year-end date of 31 March. Spending £20,000, he created 2 extra rooms on the terrace. The work started on 1 March 2023, and it took until 30 April 2023. For expense of £20,000, he can claim SBA either on year ending 31 March 2023 or on year ending 31 March 2024 (no need to proportion between two years).
Qualifying expenditure - Acquisition cost
Cost of purchasing a building is eligible for SBA (cost related to land must be reduced). The amount eligible depends on various factors (explained below).
Acquisition cost more than the market value
If the incurred cost on construction or price paid on acquisition is more than market value, the amount more than market value must be excluded.
Plant and machineries in the purchased building
Expenditure incurred for plant and machinery (along with fixtures and integral features) contained in the building should be excluded while calculating qualifying expenditure for SBA. Such items will be eligible for respective rates of capital allowances.
Acquisition cost excluded for SBA
Expenditure below are excluded from qualifying expenditure:
- Land related cost: The cost of purchasing land (including SDLT and legal fees) and obtaining planning permission are excluded. So, before you calculate SBA for the building you purchased, you need to deduct the amount you paid for the land.
- Other costs: Below costs on construction, conversion or renovation are also excluded from qualifying expenditure:
- Financing costs
- Capitalised interest
- The cost of a public enquiry
- Landscaping
- Marketing, promotion, agency or arrangement costs associated with the legal transfer of a relevant interest
- Costs associated with the acquisition of franchise rights or intellectual property
How to Claim Structures and Buildings Allowance
SBA gives you 3% of qualifying expenditure a year, relieving the full cost over 33⅓ years. Unlike plant and machinery, it doesn't qualify for the Annual Investment Allowance, so there's no way to pull the relief forward.
If the spend lands partway through an accounting period, you can either claim a time-apportioned slice that year or start the full claim the next.
Watch out for older buildings. Anything spent before the rate rose to 3% in April 2020 was relieved at just 2%, leaving a shortfall against the full cost. HMRC fixes this with a top-up allowance in the final year, but only if whoever owned the building in April 2020 still owns it then. Hold one of these? Don't lose that final-year catch-up.
One point that's easy to overlook:
Any SBA you don't claim in a given year is lost for good. Plant and machinery allowances sit in a pool and can be carried forward, but SBA doesn't. It runs strictly year by year, so if a claim gets missed or left off the return, you can't recover that 3% later. If you hold commercial property or run complex accounts, check that SBA has been claimed every year since the building first came into qualifying use. Apportionment also applies for long or short accounting periods.
How Does VAT Affect an SBA Claim?
VAT trips up a lot of commercial property owners. If you can reclaim the VAT on your build or purchase costs, your SBA is based on the cost without VAT. If you can't reclaim it, because your business makes exempt supplies, that VAT counts towards qualifying expenditure instead.
The wrinkle comes later. If the building's use changes and triggers a Capital Goods Scheme adjustment, your SBA base shifts too: an extra VAT bill gets added to qualifying expenditure, and a VAT refund knocks it down. This only affects the person who first brought the building into use, not later buyers. So if you own a mixed-use or partly exempt building, recheck your SBA figure whenever the VAT position changes. It isn't fixed at the point you first claimed.
SBA on Disposal of Building (Selling of Building)
When you sell the building, the buyer carries on claiming SBA where you left off. They don't start a fresh 33⅓-year clock, just whatever years are left. Timing decides your final claim. Sell midway through the year and you claim only for the months you owned it. Sell at the year-end and you take the full year, then stop.
Example: A company spends £100,000 on a qualifying building on 1 January 2022 and sells it on 31 May 2023. Both use calendar-year accounts.
Years | Seller | Buyer |
|---|---|---|
For 2022 | £3,000 | No Claim |
For 2023 | £1,250 {3%*100,000*5/12 (January to May)} | £1,750 {3%*100,000*7/12 (June to December)} |
From 2024 | No Claim | £3,000 per annum until 2055 (33 years counting from 2022) |
The Catch: CGT Clawback
SBA isn't free money. HMRC claws it back when you sell, through Capital Gains Tax. Every pound of SBA you've claimed gets added to your sale proceeds, so your taxable gain goes up by the same amount (TCGA 1992 s.37B). Claim £30,000 in SBA and your gain rises by £30,000.
What you actually gain is time. You get the relief now against corporation tax (19–25%) and hand some back later as CGT, currently 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers since 30 October 2024. For a company the sums are reasonably predictable. For an individual it depends on your CGT rate at the point of sale, which can swing either way.
The clawback behaves differently on a no-gain/no-loss disposal, like a transfer between spouses or within a group. The person receiving the building doesn't get a higher base cost; instead, they take over the accumulated SBA and add it to their own proceeds when they later sell to a third party. So nothing is clawed back on the transfer itself, it just moves down the line to whoever eventually sells outside the group or family. If you're restructuring property this way, keep a running total of the SBA claimed, because someone has to account for it on the final sale.
Entitlement to SBA works differently in case of leases. With regards to acquisition or initial construction cost, there might be two cases:
- If the lease is not more than 35 years, the lessor is entitled to claim SBA.
- If the lease is more than 35 years and the market value of the interest in the property retained by the lessor is less than one third of the premium paid, the lessee is entitled to claim SBA.
In case of subsequent construction costs incurred by lessee (like leasehold improvements or renovation or conversion etc), he will be entitled to SBA.
SBA at Freeport Tax Sites
Buildings in designated freeport or Investment Zone special tax sites get an enhanced SBA rate of 10% a year, so you recover the full cost over 10 years instead of 33⅓. Freeports came in under FA 2021, and the higher rate was later extended to Investment Zones. The window is fixed: expenditure must be incurred before 30 September 2031 for English Freeports, or 30 September 2034 for Investment Zones and the Scottish and Welsh Freeports.
Three conditions all have to be met:
- The construction contract, the building's first use, and any further construction must each fall within the period the site is designated.
- The claimant must be within the charge to income tax or corporation tax when the expenditure is incurred.
- The allowance statement by HMRC Manual must say the person wants the expenditure treated as special tax site qualifying expenditure.
One practical warning
If you're investing in an Investment Zone: check that your spend actually sits inside the designated boundary before you claim. Land just outside it only gets the standard 3%.
What can you do to maximise and protect an SBA claim?
Getting a capital allowances survey done before construction accounts are finalised is the single biggest lever available. A specialist can separate genuine structural spend from plant, machinery and integral features, which attract faster relief through the Annual Investment Allowance rather than the slower 3% SBA rate. Getting that split wrong either under-claims valuable P&M relief or wrongly excludes costs that belong in the AIA pool.
Because SBA cannot be carried forward, build a habit of claiming every year from first use, even in low-profit years. A missed year is gone permanently, unlike plant and machinery allowances.
If a sale is on the horizon, remember every pound of SBA claimed adds to your taxable gain on disposal. Timing a sale for a year when other capital losses or reliefs are available can soften that impact, so portfolio landlords should factor this into a wider disposal strategy rather than deciding property by property.
Frequently Asked Questions
Record-keeping causes the most trouble. Costs build up over several years, and businesses often can't produce the invoices and contracts that link each cost to a specific phase of work, which makes the claim hard to defend if HMRC asks. Apportionment is the other frequent issue: getting the split wrong on mixed-use buildings or part-year periods.
The SBA you've claimed gets added back to your sale proceeds, raising your taxable gain. So it's a cashflow benefit, not a permanent saving. Claim 3% a year on a £500,000 building for ten years and you've had £150,000 of relief, but the same £150,000 lands back in your proceeds on sale.
Yes. Temporary disuse doesn't stop the clock. As long as you still hold the interest and haven't turned the building over to residential use, the allowance keeps running and resumes once the building is back in qualifying use.
Yes, but on the original construction cost, not the price you paid. You'll need the allowance statement from the previous owner, which records that cost and the date the building first came into use. Without it, you can't substantiate the claim, so make sure it's handed over at completion.
Any SBA you don't claim for a given year is lost for good, it can't be carried forward, which is where it differs from plant and machinery allowances. If earlier returns left it out, check whether you can still amend them within the normal time limits.
Conclusion
Structures and Buildings Allowance rewards consistency over cleverness. The rate is fixed and the rules are settled, so the real risk isn't missing an opportunity, it's missing a year, misclassifying a cost, or timing a sale badly enough to hand the relief straight back through CGT.
If you're not certain your SBA claim is capturing everything it should, or you're planning a disposal and want to understand the CGT impact first, our team can review it with you.
Want to know more about SBA?
Contact us today for efficient and hassle-free assistance.
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