Capital Allowances and Business Premises Renovation

Structures and buildings allowance (SBA). The warehouse is a commercial building. The purchase of the disused warehouse for £500,000 includes the land and building. SBA is available on qualifying expenditure on the construction or renovation of a building or structure. The purchase of an existing building does not normally qualify unless it is a qualifying renovation. However, the renovation expenditure of £200,000 may qualify if it is a qualifying renovation. SBA is not available on the purchase of land. The £200,000 renovation includes:

• new roof £50,000: this is a structure, not plant, so it may qualify for SBA if it is a renovation of the building.
• electrical systems £80,000: electrical systems are generally integral features (plant and machinery) and qualify for special rate pool allowances at 6%.
• new lift £30,000: a lift is an integral feature, special rate pool at 6%.
• repainting and decorating £40,000: this is repair and maintenance, not capital, so it is deductible as a revenue expense (or if capital, it may be part of the renovation).

SBA is available at 3% per annum on qualifying expenditure. The renovation expenditure that qualifies for SBA is the £50,000 roof plus any other structure costs, but not the integral features. Assuming the roof is the only structure cost, SBA = £50,000 × 3% = £1,500 for a full year. The warehouse was brought into use on 1 October 2024, so for the year ended 31 March 2025, the allowance is for six months: £50,000 × 3% × 6/12 = £750. However, SBA is calculated on a daily basis, so the exact number of days should be used. For simplicity, six months is acceptable.

Plant and machinery.

• New machinery £150,000: qualifies for the annual investment allowance (AIA) or writing-down allowance (WDA). The AIA limit is £1,000,000, so the full £150,000 can be claimed under AIA, except for the computer system which is also plant. The computer system £20,000 qualifies for AIA. The lift £30,000 is an integral feature and qualifies for the special rate pool, but AIA can be claimed on integral features too. The electrical systems £80,000 are integral features and qualify for the special rate pool, but AIA can be claimed. Therefore, the total plant and machinery expenditure eligible for AIA is £150,000 + £80,000 + £30,000 = £260,000. The AIA can be claimed in full, so £260,000 is allowed.

Structures and buildings allowance. The purchase of the warehouse for £500,000 does not qualify for SBA because it is not construction expenditure. Only the renovation of £50,000 (roof) qualifies, giving £750 for the period.

Repainting and decorating. £40,000 is revenue repair, deductible as a trading expense, not a capital allowance. It reduces taxable profits.

Total capital allowances. AIA £260,000 + SBA £750 = £260,750. The repainting £40,000 is deducted as a revenue expense. Taxable profits after allowances: £1,000,000 − £260,750 − £40,000 = £699,250. Corporation tax at 25% (assuming main rate) = £174,812.50. If the company qualifies for the small profits rate, the rate would be 19% on profits up to £50,000, but with £699,250 profits, marginal relief may apply. The calculation should consider the marginal relief fraction.

Structures and buildings allowance (SBA) conditions. SBA is available under the Capital Allowances Act 2001, Part 2A. The allowance is 3% per annum on qualifying expenditure on the construction or renovation of a building or structure. The building must be used for a qualifying activity (e.g., a trade). The expenditure must be on the construction of a building or on a renovation that is a qualifying renovation. A qualifying renovation is one that involves the replacement or renewal of a major structural element, such as the roof, walls, floors, or foundations. The purchase of an existing building does not qualify unless the purchase price includes qualifying construction expenditure that has not been previously allowed. In this case, the warehouse was purchased for £500,000. That is a purchase of an existing building, not construction expenditure. Therefore, the £500,000 does not qualify for SBA. The renovation of £200,000 includes a new roof (£50,000), which is a major structural element and qualifies as a renovation. The electrical systems and lift are integral features and qualify as plant and machinery, not SBA. The repainting is not a structural renovation. So SBA is only on the £50,000 roof, giving £1,500 per annum (or £750 for six months).

Disadvantaged areas. If the warehouse had been in a disadvantaged area, the business premises renovation allowance (BPRA) might have applied. BPRA was available for expenditure on renovating or converting non-residential premises in disadvantaged areas for use as business premises. The allowance was 100% of the qualifying expenditure, up to a cap. However, BPRA expired for expenditure incurred after 31 March 2017 (or 30 September 2017 in some cases). For expenditure in 2024, BPRA is not available. Therefore, the location in a disadvantaged area would not change the SBA treatment. The only special allowance for enterprise zones was the enhanced capital allowance for plant and machinery, but that also expired. So the answer is that the warehouse purchase does not qualify for SBA, and the renovation qualifies only for the roof. The company should claim AIA on the plant and machinery and SBA on the roof.