3 December 2018

New Structure and Buildings Allowance helps investment in agricultural buildings

Calls for government to support investment in agricultural buildings and infrastructure appear to have been partly answered by a new SBA

Many farmers and landowners will remember the days of Agricultural Buildings Allowances (ABA).  The original form of allowances were introduced in 1945, and lasted until 1986 when they were slightly altered.  From then, the system allowed relief in relation to expenditure incurred on or after 1 April 1986 on the construction of agricultural buildings.  The expenditure was written down at an annual rate of 4% and was allowed as a deduction from farming profits, in the same way as plant and machinery allowances. 

With no warning, the system was phased out by Finance Act 2008, so that 75% of the allowance was allowed in 2008/09, 50% in 2009/10 and 25% in 2010/11, with no allowance on this expenditure available thereafter.  This was viewed as a particular blow to the farming and landowning community, who were left with often large pools of expenditure on which no allowance could be claimed and, with little or no incentive from a tax perspective for creating new buildings going forward.

There has been significant lobbying over the intervening years, in particular by bodies such as the NFU, for government to support investment in agricultural buildings and infrastructure in a more meaningful way.  This call appears to have been partly answered by the announcement in the recent Budget of a new Structure and Buildings Allowance (SBA).  

The SBA will be available for new non-residential structures and buildings, where all the contracts for the physical construction works are entered into on or after 29 October 2018.  The allowance will be set initially at 2% and will address a gap in the current capital allowances regime, with a further aim of improving the international competitiveness of the UK’s tax system. 

The aim of the SBA is to relieve the costs of physically constructing new structures and buildings, although at 2% per annum, this will require a period of 50 years before full relief is given.  The allowance will hopefully encourage the construction of new structures which are intended for commercial use, and will cover amongst other things, the necessary works to bring them into existence as well as the improvement of existing structures and buildings.  This will include the cost of converting existing premises for use in a qualifying activity. 

Neither land nor dwellings will be eligible for the relief.  Where there is mixed use of a property, for example between commercial and residential units in a development, relief will be reduced by apportionment. 

It is hoped that this allowance will help farmers and landowners invest in modern, efficient buildings, and coupled with the increase in the Annual Investment Allowance to £1m for a two year period, ensure that farmers and landowners are investing for the future.