Structures & Buildings Allowance (“SBA”) 13 JUNE 2019
PD Tax Consultants Paul Davison CTA FCCA Principal of PD Tax Consultants Vikki Elliott CTA TEP Director of Private Client Taxes
Agenda Seminar on Structures & Buildings Allowance - Questions and Comments - Other interesting matters recently dealt with - General Questions - 9.30 a.m. approx. finish - Informal chat /mingle - Back to the office ☺ -
Accountants Meeting your clients on a regular basis Advising on a whole heap of different matters Important to keep your conversation with them up to date with developments, when it comes to tax Tax is constantly changing Complexity is the client’s enemy
Guidance and Clarity Tax Sounding Board Can help you with your message to the client. Will clarify your mind and makes what you say more straightforward Detailed assistance Lets you get on with the other things you like better or are more important to your business
Tax Topics As we go through the discussion matters will crop up in your head If its about that subject you might as well raise it there and then, so you don’t have to keep thinking about it ! ☺ If it is something else, write it down on the back of the feedback form and raise it later What subjects would you love to hear about? – let us know
Structures & Buildings Allowance (“SBA”)
Background Purpose: Improve UK’s international competitiveness Make the UK the prime destination for investment Improve business case for new investments in structural assets Addresses gap in current capital allowances system Awaiting Government’s response to consultation Legislation to be published as a Statutory Instrument
Outline of the Relief Flat rate of 2% p/a over 50-year period Expenditure incurred on construction of non-residential structures and buildings, including costs for new conversions or renovations 29 October 2018 Must be used for “qualifying activity” UK & overseas structures & buildings - provided that the business is within charge to UK tax Companies and unincorporated businesses
What about the clients What construction work have they on-going? Will the allowances make a difference to clients? Are they aware of the allowance? Well if they’re going to build something, they’re going to build it If there is a decision to be made about leasing or building – this could make a difference. Commercial buildings are in essence, now slightly cheaper to build
Outline of the Relief Typical structures and buildings: Offices Retail & wholesale premises Walls Bridges Tunnels Factories Warehouses Hotels Care homes
What Expenditure Qualifies? Relief is limited to: Costs of physically constructing the structure or buildings Costs of demolition Land alterations necessary for the construction Direct costs required to bring the asset into existence – eg cost of buying the property from a building firm Repairs incidental to renovation deemed to be capital and within SBA rules
What Doesn’t Qualify? Relief does not extend to the following: Land costs (including legal costs of SDLT); Rights over land; Costs of obtaining planning permission; Work spaces within domestic settings, e.g. home-office Dwelling houses Where part of the building is used as a dwelling and the remainder is commercial, relief is available on business proportion only.
Timings SBA available from when structure or building brought into use for a “qualifying activity”. Qualifying activities include: Trade Profession or vocation UK or overseas property business that is an ordinary business for CAA 2001 Profits of mines, quarries, and other concerns Managing investments of company with investment business
Timings Qualifying activity must commence within 7 years of construction/renovation Relief is reduced on a proportionate basis for shorter accounting periods If relief is not claimed, it will be lost Relief on further capital expenditure on structure or building will be calculated separately (i.e. cannot be pooled) Contract for construction work entered into on or after 29 October 2018
Disposals No balancing allowances or charges Remaining benefit of allowance will pass to purchaser When calculating capital gain, the allowable cost will be reduced by the total amount of relief claimed Relief for the period in which the disposal takes place will be reduced on a proportionate basis
Leases < 35 years – allowances stay with the landlord > 35 years – interest is transferred to lessee provided that: Capital Sum = 75% or more Capital Sum + Value of Retained Interest
Disuse & Change in Use Originally, SBAs would be paused during periods of temporary disuse Following consultation, SBA will continue even when the qualifying use of the property ceases, except where used for residential purposes. If qualifying activity resumes, SBA will recommence but no relief will be given for period of non-qualifying use
Sundries On demolition, relief will cease and capital gains relief will be available for any unclaimed SBAs To claim, must produce an “allowance statement” which must be provided to all subsequent owners of the property. Will not qualify for AIA Could be Corporation tax or Income Tax payer Anti-avoidance rules will apply Draft legislation has been published but not yet finalised
Practicals Still beneficial to review the costs of building a property Expenditure on fixtures and integrals features will still qualify for those other capital allowances and AIA, so are much more beneficial Everything else will qualify for SBA Selling a property:- S198 elections for fixtures SBA Provide the Allowance Statement
Questions/Comments on SBAs
Any clients like this? A number of properties in a property investment company Husband and wife own that company The couple are in there 60s or 70s or 80s, They have kids but haven’t really done any Inheritance Tax Planning 2 simple but very effective things to do now
1) Arrange For Different classes of shares Now So perhaps - Husband has one B Share - Wife has one A Share - Shares have the same rights and dividends paid equally, say One of them dies i. Their share goes to the other spouse through normal will planning ii. Remaining spouse can then gift that share straight away to the kids CGT free iii. Survivor then lives 7 more years = huge IHT savings !! iv. If couple have the same class of shares then the gift at iii) cannot be CGT free and so perhaps won’t happen
2) Amend the Wills On death IHT will be payable on the shares in the Estate . (full stop) Question - How does the Estate get the money to pay the IHT bill Normally via a dividend but that would be at 38.1% ! So could the Estate sell some shares to a will trust to gain cash to pay the IHT bill?
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