Structures and Buildings Allowance (SBA)

Q: How do you calculate SBA for a commercial property project?

To calculate the SBA, multiply the qualifying construction expenditure by the current annual rate (3%). For example, if a business spends £1,000,000 on a new office, the annual claim is £1,000,000 x 3% = £30,000. This amount can be deducted from taxable profits each year for up to 33 years, provided the property meets all qualifying conditions.

Q: Are all building and renovation costs eligible for the SBA?

Not all costs qualify for the Structures and Buildings Allowance. Exclusions include the value of land, residential elements, and most fixtures like lighting and HVAC systems, which may be claimed instead under other allowances. Only new construction, structural renovations, and certain integral amenities are eligible for the SBA.

Q: What happens to unclaimed SBA if a property is sold?

If a commercial property with remaining SBA entitlement is sold, the unused balance of the allowance generally transfers to the new owner, allowing them to continue claiming deductions over the remainder of the 33-year period. SBA does not produce a balancing adjustment or immediate one-off relief on sale.

Q: Can SBA be claimed alongside other capital allowances?

Yes, businesses can claim the Structures and Buildings Allowance for eligible construction costs, while making separate claims under allowances such as the Annual Investment Allowance or Writing Down Allowances for fixtures and qualifying equipment installed within the property. Proper cost allocation is essential to ensure compliance with HMRC guidelines and optimise overall tax benefits.

Finance Dictionary >Structures and Buildings Allowance (SBA)

The Structures and Buildings Allowance (SBA) is a UK tax relief designed to help businesses recover the costs of constructing, renovating, or improving non-residential buildings and structures. By spreading the expense over several years, UK companies can reduce their taxable profits and improve cash flow. Notably, the SBA positions itself as a vital incentive for commercial property investment that aligns with the government’s broader economic strategy.

What is Structures and Buildings Allowance (SBA)?

The Structures and Buildings Allowance (SBA) is a capital allowance that lets businesses deduct a fixed percentage of construction or renovation expenditure on commercial property from their yearly taxable profits. Introduced by the UK government in October 2018, the SBA was created to address the need for better tax support for investment in business buildings. For example, a logistics company constructing a new warehouse can use the SBA to gradually claim back part of the construction costs through their corporation tax returns. This approach encourages companies to invest in long-term assets knowing there is a structured path to easing the financial burden.

Example: Consider an engineering firm that builds a new office at a cost of £2,000,000. With the SBA, it can claim a portion of this cost each year as a deduction from its taxable profits over a period of 33 and one-third years, making new premises more affordable and supporting cash flow.

Step-by-Step SBA Calculation Example

One of the most practical features of the SBA is its clear, methodical calculation process. Here is how a claim is typically calculated:
Suppose a business constructs a commercial building for £1,500,000. The qualifying expenditure does not include land costs or residential areas, but covers the core structure, integral features, and amenities. Currently, businesses can claim 3% per year of the qualifying expenditure:
Step 1: Identify qualifying costs. For this example, the business spent £1,500,000 on eligible construction.
Step 2: Multiply qualifying expenditure by the annual rate: £1,500,000 × 3% = £45,000.
Step 3: Each year, £45,000 can be deducted from the taxable profits for up to 33 years.
Step 4: Over 33 years, up to £1,500,000 could be offset against profits, depending on continued ownership and use.
This calculation illustrates how the SBA provides businesses with a structured method for recovering part of their investment in physical premises. The process is overseen by HM Revenue and Customs (HMRC) and subject to their guidance and compliance rules.

How Does SBA Work and Who Can Claim It?

The SBA applies to new non-residential structures, commercial property renovations, and qualifying conversions. It does not cover land, dwellings, or expenditure on fixtures, which are handled by other capital allowances such as writing down allowances or annual investment allowance (AIA). The business must own a freehold or leasehold interest with a minimum term of 35 years to claim the SBA. Claimants must also keep detailed records of expenditure and construction completion certifications for compliance purposes. This allowance is claimed as part of a business’s corporation tax filing and is available to most UK companies investing in qualifying properties.

Historical Context and Policy Background

The SBA was introduced in 2018 after the UK government identified a gap in capital allowances for business property, particularly compared to the incentives available for plant and machinery. This policy followed previous measures like Building Act 1984 regulations and historic capital allowances that focused on specific equipment but not the buildings themselves. The SBA changed this landscape, spurring property investment and modernising the country's commercial infrastructure landscape.

Pros and Cons of Structures and Buildings Allowance

One significant advantage of the SBA is its ability to improve business cash flow by reducing taxable profits over several decades, making long-term property investment more viable and reducing financial risk. This can help companies of all sizes manage large construction or renovation projects that might otherwise be financially out of reach. Another benefit is the clarity and predictability in the allowance calculation, giving businesses a reliable planning tool for investment. However, there are limitations to consider. The SBA cannot be claimed for residential buildings, and it only allows a deduction over a lengthy period, not as an immediate relief, which means benefit realisation is slow. The strict record-keeping requirements and HMRC compliance checks can also present administrative challenges for some businesses. Lastly, if a property is sold, the remaining allowance is typically passed to the new owner rather than producing an immediate balancing adjustment.

Practical Applications and Key Considerations

The SBA is widely used by companies involved in property development, logistics, and infrastructure, as well as sectors expanding their non-residential footprints. For example, a manufacturer may construct a new plant, or an office-based business may completely renovate a headquarters to modern standards—both would benefit from the allowance. Key considerations include ensuring that expenditure is properly classified (for example, distinguishing core structure from fixtures), as different capital allowances may apply to separate elements of a build. Consulting with a tax specialist or accountant is often advantageous, especially for complex projects or mixed-use properties. SBA claims must always comply with HMRC rules and should be accompanied by a valid construction completion statement.

Conclusion: SBA’s Role in Business Investment

The Structures and Buildings Allowance is an essential financial tool that encourages UK businesses to invest in non-residential property. While its benefit unfolds over several decades, it can make the crucial difference in a company’s ability to fund large-scale construction, adapt to market needs, or improve operational efficiency. For many, understanding how capital allowances like the SBA interact with other tax incentives such as capital expenditure or fixed asset rules is central to optimising tax savings and achieving growth. For business owners seeking more information on how such incentives support property and infrastructure projects, guidance is available through the business funding solutions provided by specialist resources.