Capital Allowances

Posted on: March 11th, 2019 by Sarah Curzon No Comments

The 2018 Budget included announcements on the capital allowances that may be claimed by businesses, and changes to capital gains tax reliefs.

Annual Investment Allowance

From 1 January 2019 the annual investment allowance (AIA) will increase from the current rate of £200,000 per year to £1m for all qualifying investment in plant and machinery until 31 December 2020.

This increase provides a generous incentive for business owners to invest in plant & machinery to raise productivity.

Structures and buildings allowance

What is it?

The aim of the structures and buildings allowance (SBA) is to address a gap in the current capital allowances system where no relief has been available for most structures and buildings apart from forms of integral features.

The SBA will be available to businesses that incur qualifying capital expenditure on structures or buildings used for qualifying activities after 29 October 2018.

Qualifying conditions

For these purposes, qualifying activities include a trade (such as farming), a profession or vocation or a property business.

Qualifying expenditure is limited to the costs of physically constructing the structure or building, including costs of demolition or land alterations necessary for construction and direct costs required to bring the asset into existence.

The cost of integral features and fixtures that are functional assets within a building will continue to qualify as plant & machinery (e.g. lighting or heating).

Relief will be available for new commercial structures and buildings as well as capital expenditure incurred on renovations or conversions to existing commercial structures or buildings.

Amount of the relief

The SBA will be allowed as a deduction from profits at an annual flat rate of 2% on costs incurred over a 50 year period. A claim for the relief can only be made once the structure or building first comes into use, and the claimant must have an interest in the land on which the structure or building is constructed.

There will be no balancing charge or balancing allowance on disposal of the property, instead the base cost of the asset will be reduced by the amount of SBA claimed for capital gains tax purposes.

If you require further information please get in touch.

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