The structures and buildings allowance: 3 per cent a year, the statement that makes it claimable, and what it is really worth
Build, buy new or renovate a commercial building and 3 per cent of the construction cost comes off taxable profits every year for 33 and a third years. The relief is easy to overlook and easier to lose: without a written allowance statement the qualifying cost is treated as nil, and a year's allowance that goes unclaimed never comes back. What it is worth depends on who owns the building, because whatever has been claimed is added to the sale price when the building is sold.
A relief for the building, not the land and not the kit
The structures and buildings allowance sits in Part 2A of the Capital Allowances Act 2001. It gives relief for the cost of constructing, renovating or converting a building or structure used for a qualifying activity, which includes a trade, a profession and a UK or overseas property business, and it is available only where every contract for the construction works was entered into on or after 29 October 2018. The rate was 2 per cent until April 2020 and has been 3 per cent since, on a straight line, for a fixed period of 33 and a third years. The period starts on the later of the day the building is first brought into non-residential use and the day the expenditure is incurred, so a building finished and left empty does not start its clock until someone actually uses it. HMRC's guidance lists what can go in: design fees, site preparation, the construction works themselves, renovation, conversion and fitting-out works, and repairs that are incidental to a renovation or conversion and not otherwise deductible. What cannot is just as important. The land itself and rights over it are excluded, and so is the cost of altering land, which the legislation says includes reclamation, remediation and landscaping. Planning permission costs are excluded. So is anything that is plant and machinery, including the integral features of a building such as its electrical, heating and lift systems. That last exclusion is not a loss. Plant and integral features belong in the plant and machinery regime, where the annual investment allowance gives 100 per cent relief on up to GBP 1,000,000 of qualifying spending a year, so separating them out of a construction cost is usually the most valuable single piece of work on a new building. The structures and buildings allowance is what is left once that is done.
The use test, and why a care home can qualify when a flat cannot
The allowance depends on the building being in non-residential use, and section 270CF defines residential use rather than the other way round. A building is in residential use if it is used as a dwelling-house, as residential accommodation for school pupils, as student accommodation that is purpose-built or converted for students and available to them on at least 165 days of each calendar year, as residential accommodation for the armed forces, or as a prison or similar establishment. The limb people misread covers a home or other institution providing residential accommodation, because it carries an exception: accommodation provided with personal care for people who need it by reason of old age, disability, past or present dependence on alcohol or drugs, or past or present mental disorder is not residential use. A care home of that kind can therefore qualify. A hotel is not on the list at all. Two further rules catch mixed buildings. Any part of a building used as a dwelling-house is not in qualifying use, whatever else it is used for, so a shop with a flat above has its cost apportioned and the flat's share gets nothing. And a structure on land occupied or enjoyed as the garden or grounds of a residential building is itself treated as in residential use. For a landlord, it is the tenant's use that decides the position, since the landlord's own qualifying activity is the property business. Once a building has been in non-residential use, a later period of disuse does not stop the allowance, and HMRC accepts that it continues for the rest of the period. Demolition of the whole building does stop it, and the remainder is simply lost.
The allowance statement is the relief
This is where most claims that should exist do not. Section 270IA requires a written allowance statement before anyone first claims. It must identify the building and state the date of the earliest contract for its construction, the amount of qualifying expenditure, and the date it was first brought into non-residential use, together with the date of any later qualifying expenditure. HMRC's manual is blunt about the consequence: where there is no allowance statement, the qualifying expenditure is nil. On a sale the seller must pass the statement, or a copy, to the buyer, and a buyer of a used building claims on the original qualifying cost for whatever is left of the original 33 and a third years, whatever price was actually paid. A buyer of an unused building from a developer claims on the price paid to the developer, after taking out the land and the other excluded elements. It follows that the statement belongs in the pre-contract enquiries on every commercial purchase built or refurbished since late 2018, and that the time to prepare one for your own building is at practical completion, while the contracts, the cost reports and the date of first occupation are all still to hand. Reconstructing a construction cost ten years later, with the contractor gone, is where these claims die. There is one more rule that punishes delay. HMRC's manual states that unclaimed allowance cannot be carried forward and is lost. The 33 and a third years run whether or not you claim, so a building whose owner discovers the relief in year six has lost five years of it permanently.
What it is worth to a company
The honest answer is less than the headline, because section 37B of the Taxation of Chargeable Gains Act 1992 increases the consideration on a later disposal of the building by the amount of the allowance made to the person disposing of it. What is claimed is, in effect, handed back as extra gain on the sale. Illustrative figures, not drawn from any client's affairs, show the shape of it. A company builds a warehouse whose qualifying cost, after land and plant have been stripped out, is GBP 2,000,000. It claims GBP 60,000 a year. At the 25 per cent main rate that saves GBP 15,000 of corporation tax a year, and GBP 150,000 over ten years. It then sells. The GBP 600,000 it has claimed is added to the sale proceeds, and the extra gain costs GBP 150,000 at the same 25 per cent. For a company paying the main rate throughout, the allowance is therefore a timing benefit: the use of GBP 150,000 for an average of about five years, which is worth having but is not a permanent saving. It can be worse than neutral. A company whose profits sit below GBP 50,000 in the years it claims gets relief at 19 per cent, and if the gain on sale lifts that year's profits above GBP 250,000, the add-back is taxed at 25. Associated companies lower both of those limits. None of this is a reason not to claim, because the add-back arises only on a disposal and a company that holds for the long term enjoys the relief for decades. It is a reason to model the sale rather than assume the relief is free money.
What it is worth to an individual landlord
For an individual the arithmetic is different, because the allowance is given against income and the add-back is taxed as a capital gain. Take a higher-rate taxpayer who owns a newly built parade of shops with GBP 500,000 of qualifying cost, first used on 6 April 2026, again as an illustration. The allowance is GBP 15,000 a year. In 2026/27 that saves GBP 6,000 at 40 per cent. From 6 April 2027 property income carries its own rates under the Finance Act 2026, and at the property higher rate of 42 per cent the same allowance saves GBP 6,300. Those rates are legislated for 2027/28 only, so the following figures assume they continue. Over ten years the relief comes to GBP 62,700. Sell at the end of the tenth year and GBP 150,000 is added to the proceeds, which at the 24 per cent capital gains rate costs GBP 36,000. The permanent saving is GBP 26,700, before counting the value of having had the tax earlier. For an additional-rate taxpayer the gap is wider still. And where the building is held until death, there is no disposal by the owner on which the add-back can bite, because death is not a disposal for capital gains tax. One limit applies to individuals: a property loss created by capital allowances can in some cases be set against other income, but section 123 of the Income Tax Act 2007 disregards this particular allowance for that purpose, so it can only ever reduce rental profits.
Renovation starts its own clock
Expenditure on renovating or converting a building is treated as if it were expenditure on constructing a building for the first time, and HMRC confirms that it forms a separate block with its own 33 and a third year period. That has two practical consequences. A building constructed long before October 2018, which could never qualify on its original cost, can attract the allowance on a substantial refurbishment carried out under contracts entered into since. And a conversion of residential space into commercial use can qualify on the conversion cost, while a conversion running the other way ends the allowance when the building comes into residential use. The same allowance statement discipline applies to each block, and HMRC accepts either a separate statement for the later works or a single statement recording both amounts and dates. Buildings on designated special tax sites in freeports and investment zones attract an enhanced rate of 10 per cent over ten years instead, subject to their own conditions and time limits, which are worth checking against the site designation before a figure goes into an appraisal.
Five questions to put to your accountant before the next return
Does any building we own, or have fitted out or refurbished as a tenant, have construction, renovation or conversion costs under contracts dated on or after 29 October 2018, and have we claimed? Is there an allowance statement for each one, and does it carry every item section 270IA requires? When we bought, did the seller's statement come across with the title, and if not, can it still be obtained? Has the construction cost been split between the building, the land and the plant and integral features, so that each part is in the regime that gives it the most relief? And, for anything we might sell, what does the section 37B add-back do to the gain, so that the price we accept is the price we have actually modelled? The allowance is modest, 3 per cent a year, but it runs for a third of a century, and the only way to lose it entirely is to do nothing.
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This article is general information only and does not constitute tax advice. Figures and dates are current as at the date of writing; any worked example is illustrative. Always consult a qualified adviser before acting.