Every commercial property purchase is really three purchases wearing one price tag: the land, the structure, and everything bolted, wired or plumbed into it. Each is treated completely differently for tax, and the split is rarely done properly at the point of sale. The result, on almost every second-hand commercial building we look at, is unclaimed relief sitting on the balance sheet for years — sometimes decades — because nobody separated the numbers when the deal completed.
Three pools inside one purchase price
When a business buys a warehouse, office or hotel, HMRC does not see a single asset. It sees land (no relief, ever), the structure and shell of the building (potentially the Structures and Buildings Allowance), and the fixtures, fittings and systems inside it — lighting, heating, lifts, wiring, sanitary ware — which usually qualify as plant and machinery. Getting each pool right, and claiming what each one actually allows, is where the value sits. Getting it wrong — usually by lumping everything into "the building" and claiming nothing — is how relief goes unclaimed.
The Structures and Buildings Allowance
SBA was introduced for construction contracts entered into on or after 29 October 2018 and covers the qualifying construction cost of new (or substantially renovated) non-residential structures and buildings — offices, factories, warehouses, hotels, care homes and similar commercial premises. It is claimed at a flat 3% a year on a straight-line basis, meaning the full qualifying cost is written off over roughly 33 and a third years (expenditure incurred before April 2020 accrues at the earlier 2% rate). There is no acceleration and no front-loading — it is a slow, steady deduction against profits every year the building is held and used for a qualifying purpose.
Crucially, SBA does not cover the cost of the land itself, and it is only available to whoever incurs the qualifying construction expenditure and then uses the building for a trade or qualifying property rental business.
What SBA does not cover
SBA is a non-residential relief. It does not apply to dwellings, and it does not apply to furnished holiday lets — a point that matters more than it used to, since FHL owners lost their capital allowances entitlement entirely when the FHL regime was abolished from April 2025. If a building is mixed use — a shop with a flat above, for example — the construction cost needs apportioning between the qualifying commercial element and the excluded residential element, in the same way SDLT treats genuine mixed-use property differently to residential.
Embedded fixtures and the special rate pool
Separately from the structure itself, most commercial buildings contain a substantial value of integral features — electrical and lighting systems, heating and cooling, water systems, lifts and escalators — which qualify for capital allowances as plant and machinery rather than as part of the structure. These sit in the special rate pool, written down at 6% a year on a reducing-balance basis, alongside other assets like thermal insulation and long-life fixtures. Standalone plant — kitchen equipment, security systems, some flooring — typically falls into the main pool at 18%.
On a typical commercial building, embedded fixtures can represent a meaningful proportion of the total purchase price — often significantly more than owners assume when they think of "capital allowances" as applying only to obviously movable equipment.
Annual Investment Allowance and full expensing
Both pools benefit from faster reliefs that sit on top of the standard rates. The Annual Investment Allowance (AIA) gives 100% relief in the year of expenditure on qualifying plant and machinery, up to an annual cap of £1 million, for businesses of any structure — sole traders, partnerships and companies alike. For companies specifically, full expensing gives a 100% first-year deduction on qualifying new and unused main-rate plant and machinery with no cap, alongside a 50% first-year allowance for special rate assets, though full expensing is not available to unincorporated businesses and does not apply to second-hand plant.
Used well, these reliefs mean a large part of a commercial property purchase — the embedded fixtures specifically, not the shell — can generate tax relief immediately, rather than trickling through over decades like the SBA element.
The second-hand building trap
Buying an existing commercial building, rather than constructing one, is where most unclaimed relief actually sits. Two separate pieces of paperwork need to pass from seller to buyer, and both are easy to miss in a straightforward conveyance:
- The SBA allowance statement — without it, the buyer cannot continue claiming SBA on the structure for the remainder of the 33⅓-year period, even though the relief itself has not run out.
- A formal capital allowances election or apportionment for fixtures and integral features, agreed between buyer and seller and fixed within two years of completion. Miss this window and the value that can be attributed to fixtures for allowances purposes can be permanently fixed at nil for that transaction — not just delayed, but lost outright.
This is why a proper capital allowances review at the point of purchase — separating land, structure and fixtures, and agreeing the paperwork with the seller's solicitor before completion — routinely uncovers relief on buildings that have been owned, and depreciated on the accounts, for years without anyone claiming it.
Selling on: no clawback, but a smaller base cost
Unlike plant and machinery, SBA claimed on a building is not clawed back through a balancing charge when the property is sold. Instead, the new owner simply continues claiming the remaining allowance over what is left of the original period, using the seller's allowance statement. The trade-off sits in Capital Gains Tax: the SBA claimed over the years of ownership reduces the base cost used to calculate the gain on eventual sale, so the relief is not free — it is a timing benefit, bringing forward a deduction against income or profit now in exchange for a somewhat larger capital gain later.
What this means in practice
If your business owns, or is about to buy, commercial property — an office, a warehouse, a hotel, a care home, a mixed-use building with a commercial element — the questions worth answering before or shortly after completion are: has the price been properly apportioned between land, structure and fixtures; has an SBA allowance statement been obtained or issued; and has the fixtures election been agreed with the other side within the two-year window. Each of these is straightforward to sort out at the point of transaction and considerably harder, sometimes impossible, once the window has closed.
Common questions
What is the Structures and Buildings Allowance?
The Structures and Buildings Allowance (SBA) is a tax relief for the construction cost of new non-residential structures and buildings, claimed at a flat 3% a year on a straight-line basis over roughly 33 years. It applies to contracts entered into on or after 29 October 2018 and does not cover the cost of the land itself.
What rate is SBA claimed at and over how many years?
SBA is claimed at 3% of qualifying construction cost per year, on a straight-line basis, meaning the full cost is written off over roughly 33 and a third years. The rate was 2% for expenditure before April 2020.
Can I claim SBA on a residential property or furnished holiday let?
No. SBA is only available on non-residential structures and buildings used for a qualifying trade or property business, such as offices, warehouses, hotels and care homes. Dwellings and furnished holiday lets are excluded, and FHL owners lost their capital allowances entitlement entirely when the FHL regime was abolished from April 2025.
What happens to unclaimed capital allowances when I buy a second-hand commercial property?
The buyer needs the seller's SBA allowance statement to continue claiming SBA, and both parties are expected to agree a formal capital allowances apportionment for fixtures and integral features within two years of completion. Miss either step and the allowances can be lost permanently, not just delayed, for that owner.
Kieran Holsgrove is a Director and Co-Founder of Grafene Accounting, the property tax specialist firm based in Liverpool. He advises property developers, investors and landlords across Merseyside, Greater Manchester, Lancashire and Cheshire on tax structuring, developer VAT, SDLT and the long-view decisions that compound over the life of a portfolio.
This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.