Structures & Buildings Allowance (SBA) 13 JUNE 2019 PD Tax - - PowerPoint PPT Presentation

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:

= 75% or more Capital Sum 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

i.

One of them dies

ii.

Their share goes to the other spouse through normal will planning

iii.

Remaining spouse can then gift that share straight away to the kids CGT free

iv.

Survivor then lives 7 more years = huge IHT savings !! 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?