Sudden Impact!

Alun Oliver considers the implications of the proposed changes to the capital allowances regime, introduced in the autumn Budget.


Chancellor of the Exchequer Philip Hammond – ‘Fiscal Phil’ to some – was clearly pleased with himself and his most recent Budget statement. Whilst we awaited the detail of Finance (No 3) Bill and draft legislation, it was, on first glance, a ‘giving’ Budget, encouraging businesses to spend, and spend now.

 The revisions to the UK capital allowances regime – or, as some would put it, ‘fiscal incentives’ – will have a sudden impact on UK taxpayers, with the first changes rolling out in January 2019. The chancellor’s ambition is to encourage free trade and investment into the UK and its means of production. The world of capital allowances has changed with the introduction of a new category – not embedded capital allowances, a mythical asset category without reference in the lexicon of UK tax legislation – the structures and buildings allowances (SBAs).

In some way, SBAs reverse Gordon Brown’s abolition of industrial building allowances (IBAs), albeit at the less generous rate of 2% a year for 50 years. For the first time in UK tax, almost all UK commercial property can benefit from tax relief on 100% of the project expenditure, excluding land.

Referencing the June 2018 report of the Office of Tax Simplification report on allowances (, the various Budget changes are largely simplifications, but others are perhaps less so. The only certainty of these unconsulted measures is that there will be winners and losers. The latter might be those investors who started a major new commercial development a few days before the chancellor’s statement.

Key Points

  • A new category of structures and buildings allowances reverses, to some extent, the abolition of industrial building allowances.
  • Potentially, the allowances will be spread over 50 years leading to onerous record-keeping.
  • Punitive anti-avoidance measures are promised if contracts are withdrawn, revoked or replaced by a later one.
  • The complexity of lease transactions and potential for abuse has led to two new tests.
  • The annual investment allowance limit will rise to £1m for two years from 1 January 2019.
  • Generally, writing down allowances for the special rate pool will reduce from 8% to 6% from April 2019.
  • Enhanced capital allowances will cease from April 2020.

This article was published in Taxation in November 2018.

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