Structures and Buildings Allowance (SBA) 2026/27: The 3% Straight-Line Claim Mechanics Under CAA 2001 Part 2A

Buyers of commercial property hit a structural separation in the Capital Allowances Act 2001. Plant and machinery in the building (integral features, lifts, electrical and water systems, removable equipment) sits on the Part 2 side, with the Annual Investment Allowance, full expensing, and the main and special-rate pools as the relief routes. The building shell, load-bearing walls, floors, roofs and the items explicitly carved out of plant by ss.21 List A and 22 List B sit on the Part 2A side, with the Structures and Buildings Allowance as the relief route. SBA is the line item most general guidance underplays, and it is the one most likely to be lost by a buyer who does not get the allowance statement at acquisition.

This page walks Part 2A from first principles: the 29 October 2018 construction-start gate that grandfathers earlier construction out entirely, the 3% straight-line writing-down over 33⅓ years that Finance Act 2020 introduced from 1 April 2020 corporation tax and 6 April 2020 income tax, the 10% over 10 years that applies to special tax site (Freeport and Investment Zone) qualifying expenditure, the residential exclusion at CAA 2001 s.270CF (not s.270BG, a common drafting error), the allowance statement requirement at s.270IA that treats qualifying expenditure as nil where the statement does not exist, the no-balancing-event treatment on disposal, and the TCGA 1992 s.37B cumulative add-back that recoups the SBA into the CGT base on eventual sale.

The construction-start gate at 29 October 2018

CAA 2001 s.270AA (Structures and buildings allowances) sets the operative gate. The Part applies if construction of a building or structure begins on or after 29 October 2018, qualifying expenditure is incurred on or after that date on its construction or acquisition, and the first use after qualifying expenditure is incurred is non-residential use. The 29 October 2018 date is Budget Day 2018, when SBA was announced; Finance Act 2018 Schedule 6 brought the regime into force. There is no transitional provision that pulls pre-gate construction into scope. A building whose construction contract was signed on 25 October 2018 cannot generate any SBA on the original construction cost regardless of who owns it now or what it is used for.

The gate is the construction-start date, not the acquisition date. A buyer acquiring a fully-built commercial property in 2026 whose construction began on or after 29 October 2018 acquires the right to claim SBA on the qualifying construction expenditure (subject to the allowance statement gate). A buyer acquiring a property whose construction began pre-gate cannot claim SBA on the construction element of the purchase price; the only SBA the buyer can claim is on any post-gate extension, addition or qualifying refurbishment expenditure they themselves incur (and on which they create or update an allowance statement).

The 3% straight-line writing-down over 33⅓ years

SBA writes down qualifying expenditure at a flat 3% per year of the original cost, straight-line, over 33 and a third years. Per CAA 2001 s.270AA(5)(b), the basic annual allowance is 3% of the qualifying expenditure for general qualifying expenditure. The rate was uplifted from the originally legislated 2% (over 50 years) by Finance Act 2020 with effect from 1 April 2020 for corporation tax and 6 April 2020 for income tax. Every current SBA claim uses 3%; there is no residual 2% rate or transitional layer surviving the FA 2020 uplift. Anyone quoting 2% as current is reading pre-FA-2020 material.

Special tax site qualifying expenditure (construction in a Freeport or Investment Zone designated tax site, with the qualifying activity meeting the designation conditions) writes down at the enhanced 10% straight-line over 10 years, per s.270AA(5)(a) and the supporting subsections. The 10% rate delivers the full 100% SBA in a third of the time, making the framework materially valuable for qualifying developments. The companion FYA on plant within special tax sites at s.45O delivers 100% in year one. Both routes depend on the site continuing to hold special tax site status at the time of incurring; the policy framework is dynamic and worth re-verifying for any current development.

The allowance statement requirement at s.270IA

The allowance statement is the procedural gate without which the qualifying expenditure is treated as nil. CAA 2001 s.270IA(2) is verbatim explicit on the consequence: "the amount of the qualifying expenditure is treated as nil unless, before the current owner first makes a claim for an allowance under this Part, the allowance statement requirement is met." No allowance statement, no SBA. The "current owner" framing means the rule applies to every successor in title, not just the original constructor.

The statement must, per s.270IA(4), be in writing and include identification of the building or structure, the date of the earliest construction contract, the amount of qualifying expenditure on construction or acquisition, the date the building or structure was first brought into non-residential use, and any post-first-use qualifying expenditure with corresponding dates. The format is open: a typed or signed statement on the seller's letterhead suffices, provided each of those data points is captured. HMRC's CA90000 series of manual pages walks the practical content; CA94550 specifically covers the allowance statement format.

On commercial-property acquisitions, the practical implication is direct: a buyer must request the allowance statement from the seller at heads-of-terms stage, not at completion and not in year two of ownership. Where the seller has no allowance statement and the prior owner cannot be located or will not co-operate, the buyer's SBA claim is permanently barred on that interest. The reconstruction option is real but practically difficult: the buyer can attempt to construct an allowance statement from primary records (construction contracts, invoices, building control sign-offs), but the burden is on the buyer and HMRC are not bound to accept reconstructions in full.

The residential exclusion at s.270CF (not s.270BG)

CAA 2001 s.270CF (Exclusion: residential use) blocks SBA on any building or structure in residential use. Note the section identity: s.270CF is the residential-use exclusion. s.270BG (Acquisition or alteration of land etc) is a different exclusion, dealing with land-acquisition costs. Conflating the two is a common drafting error, propagating through legacy guidance.

Residential use under s.270CF(1) is defined broadly: dwelling-houses (the standard meaning under property law), residential accommodation for school pupils, student accommodation available for occupation by students for at least 165 days of a calendar year (the 165-day test takes purpose-built and converted student accommodation into the residential exclusion), residential accommodation for members of the armed forces, homes and other institutions providing residential accommodation (with a carve-out for personal-care institutions of old age, disability, addiction or mental disorder), and prisons or similar establishments. s.270CF(2) extends residential treatment to any garden or grounds occupied with a residential building.

The mixed-use trap at s.270CF(5) is the operationally material one for commercial-property developers. The subsection reads verbatim: "Any part of a building or structure that is used as a dwelling-house (whether or not it is also used for any other purposes) is not in qualifying use." A mixed-use building with commercial ground floor and residential flats above loses SBA on the residential-flats portion entirely. Even a residential portion that is also used for non-residential purposes (a flat that doubles as a workspace) does not qualify; the dwelling-house use takes the whole part out of qualifying use. Only the genuinely non-residential portion attracts SBA, with the apportionment performed on a just-and-reasonable basis at the qualifying-expenditure stage.

The land-acquisition exclusion at s.270BG

CAA 2001 s.270BG excludes from qualifying expenditure: expenditure on the acquisition of land or rights in or over land; expenditure on altering land (land reclamation, land remediation, landscaping other than creating a structure); and expenditure on planning permission costs. Subsection (3) extends the exclusion to fees of acquisition, SDLT or LTT or LBTT, and other incidental costs of acquisition.

On a commercial-property purchase, the land portion of the price is therefore outside SBA scope; only the construction or acquisition cost of the building or structure itself can qualify. Apportionment between land and building is typically performed by reference to a contemporaneous valuation (often a quantity-surveyor exercise) or to the existing land-and-building split in the seller's books. For a £4,000,000 commercial property purchase split £1,500,000 to land and £2,500,000 to the building, SBA runs on the £2,500,000 building portion only; the £1,500,000 land share absorbs into the CGT base cost on eventual disposal.

No balancing event on disposal: the TCGA 1992 s.37B mechanism

SBA disposal works differently from plant-and-machinery disposal. There is no balancing event under Part 2A. The allowance period continues with the building: the successor owner inherits the remaining 33⅓ years (or 10 years for special tax site qualifying expenditure) and writes down on the same basis from the same starting point. The seller does not bring a disposal value into any SBA pool; the buyer takes the allowance statement and picks up the writing-down stream from the next accounting period.

The disposal recoupment runs entirely on the CGT side via TCGA 1992 s.37B. The provision requires that, when a building or structure to which SBA has applied is disposed of, the cumulative SBA claimed by the seller (and by any prior SBA-claiming owner the seller acquired from, where the seller stepped into the prior owner's allowance period) is added to the disposal consideration for chargeable gains purposes. The CGT base cost remains unchanged; the deemed consideration is the actual consideration plus the cumulative SBA. The cumulative claim therefore recoups against the seller's CGT or corporation tax on chargeable gains computation at the rate then in force.

The economic effect is that SBA is a timing shift, not a permanent relief. For a company holding a commercial property for the full 33⅓ year period and claiming 100 per cent of the original SBA, the cumulative recoupment via s.37B at disposal can equal the original qualifying expenditure: every pound of SBA relieved at the year-on-year corporation tax rate is recouped at the disposal-period corporation tax rate via s.37B. The relief delivers value to the extent that the CT or IT deduction rate exceeds the eventual recoupment rate, or where the timing of relief delivers cash-flow advantage.

Anyone framing SBA as carrying a CA balancing allowance or charge on disposal is conflating Part 2A with Part 2. The legacy guidance pool propagates this error regularly. Bucket sibling page C2 on balancing allowances and charges walks the P&M-side disposal mechanic and explicitly excludes SBA from that treatment.

Worked claim: £4m commercial unit acquired and first used January 2026

Consider a property SPV acquiring a purpose-built warehouse for £4,000,000 with effective date 12 December 2025, first brought into non-residential use on 15 January 2026. The land share of the price is £1,200,000 (per the just-and-reasonable apportionment in the contract); the building shell share is £2,400,000; identified fixtures and integral features pooled separately under Part 2 are £400,000. Construction of the warehouse began in March 2023 (post-29-October-2018, comfortably within the SBA gate). The vendor provides an allowance statement at completion identifying the building, the March 2023 construction contract date, the £2,400,000 qualifying expenditure on construction, the November 2025 date the building was first brought into non-residential use (under the vendor), and no post-first-use qualifying expenditure.

The SPV updates the allowance statement to record the 15 January 2026 first-use date in its own ownership (which coincides with first-use under the SPV's qualifying activity), and pursues the SBA claim. Annual SBA at 3% is £72,000 per year of the SPV's accounting period (apportioned for the part-period of acquisition). The cumulative claim over the SPV's full 33⅓ year holding period would be £2,400,000, with the allowance period ending on 14 January 2059. On disposal say 10 years later for £4,500,000 attributable consideration, the SPV's TCGA 1992 s.37B add-back is the cumulative SBA of £720,000 (10 years at £72,000), and the deemed disposal consideration for CGT becomes £4,500,000 + £720,000 = £5,220,000. The CGT base cost remains £4,000,000; the chargeable gain is £1,220,000 (subject to indexation, where applicable, and reliefs). The s.37B add-back has effectively recouped the £720,000 of cumulative SBA, taxed at the SPV's then-applicable corporation tax rate on chargeable gains.

The plant-and-machinery side of the same acquisition runs separately. The £400,000 of identified fixtures and integral features go through Part 2: AIA absorbs the £400,000 entirely in the period of acquisition (assuming AIA headroom), giving the SPV a £400,000 first-period deduction. On disposal, the s.198 election with the buyer fixes the disposal value of the fixtures, with the seller bringing the elected value to its pools per s.196. The Part 2A SBA stream and the Part 2 plant-and-machinery stream run in parallel for the entire SPV ownership period.

Worked claim: pre-gate construction, no SBA on the construction element

Contrast with a property SPV acquiring a £2,000,000 office building in 2026 whose construction was completed in 2017 (pre-29-October-2018, outside the SBA gate). The SPV cannot claim SBA on the £1,200,000 building shell portion of the price because the construction-start date is pre-gate. The land portion (£800,000) is excluded by s.270BG. The only SBA potential is on any post-gate improvements: if the SPV spends £300,000 in 2027 on a substantial qualifying refurbishment to the building shell (post-29-October-2018 construction expenditure), the £300,000 becomes its own SBA qualifying expenditure, with the SPV creating a fresh allowance statement covering that tranche. Annual SBA on the refurbishment is £9,000 per year for 33⅓ years from the date of first use after the refurbishment qualifying expenditure was incurred. The pre-gate construction is grandfathered out permanently; no SBA on the original shell.

The qualifying-activity gateway at s.270CA

SBA is available where the building or structure is held for a qualifying activity within CAA 2001 s.270CA. The qualifying activities for Part 2A are: a trade; a UK property business; an overseas property business; a profession or vocation; the carrying on of a concern listed in section 12(4) of ITTOIA 2005 or section 39(4) of CTA 2009 (mines, quarries and other concerns); and managing the investments of a company with investment business. Note that s.270CA does not list FHL separately. The FHL abolition by Finance Act 2025 Schedule 5 affected s.15 (plant and machinery qualifying activities) but did not need to amend s.270CA because SBA-qualifying activity scope was never separately broadened for FHL; FHL operators relying on SBA pre-abolition were always in error because the s.270CF residential exclusion took the property out of qualifying use.

For commercial-property SPVs holding the property for the s.270CA UK property business activity, SBA is available subject to the residential-use exclusion. For investor companies whose qualifying activity is managing the investments of a company with investment business (the typical Family Investment Company holding commercial property), SBA is similarly available subject to the same exclusions.

Practical mistakes to avoid

The SBA cluster generates a recurring set of errors, driven mostly by the procedural-gate nature of the relief and the timing-shift framing.

Missing the allowance statement at acquisition. The two-year-clock framing that applies to s.198 fixtures elections does not apply to SBA: there is no statutory time-limit on creating an allowance statement (the rule is "before the current owner first makes a claim"). But the practical clock is real: the buyer needs the statement from the seller, and once the transaction is complete and the seller has moved on, getting the statement signed retroactively becomes progressively harder. Heads-of-terms placement is the only reliable defence.

Citing s.270BG as the residential exclusion. s.270BG is the land-acquisition exclusion. s.270CF is the residential exclusion. The conflation is common and propagates through legacy guidance. Pre-Wave-6 advice citing s.270BG for the residential exclusion is wrong on the section identity.

Quoting 2% as the current SBA rate. The 2% rate ended on 31 March 2020 (corporation tax) or 5 April 2020 (income tax). Finance Act 2020 uplifted to 3% with effect from 1 April 2020 CT or 6 April 2020 IT. Material that still quotes 2% is reading pre-FA-2020 commentary.

Claiming SBA on the residential portion of a mixed-use building. s.270CF(5) takes any part used as a dwelling-house out of qualifying use entirely. The residential portion of a mixed-use building does not qualify even if the apportionment of the construction cost would otherwise allocate value to it.

Framing SBA as a "free" 100% allowance over 33⅓ years. TCGA 1992 s.37B claws back the cumulative SBA into the CGT computation on disposal. The recoupment is real and is computed at the seller's CGT or CT-on-chargeable-gains rate on disposal. SBA is a timing shift, not a permanent relief; modelling the disposal-period recoupment is the load-bearing pre-claim analysis.

Treating SBA disposal as a balancing event. SBA has no balancing event under Part 2A. The disposal mechanic is on the CGT side via s.37B. The bucket sibling C2 page on balancing allowances and charges covers the P&M-side disposal mechanic and explicitly excludes SBA from that treatment.

Claiming SBA on land-acquisition costs. s.270BG excludes land, planning permission costs, SDLT / LTT / LBTT, and other incidental costs of acquisition. The land share of the purchase price is outside SBA scope; only the building share qualifies.

Sources and statutory references

1. Capital Allowances Act 2001, section 270AA (Structures and Buildings Allowance; 29 October 2018 gate; 3% / 10% rates; 33⅓ / 10-year allowance periods).
2. Capital Allowances Act 2001, section 270BA (Qualifying expenditure definition).
3. Capital Allowances Act 2001, section 270BG (Land-acquisition exclusion, NOT the residential exclusion).
4. Capital Allowances Act 2001, section 270CA (Qualifying activities for SBA purposes).
5. Capital Allowances Act 2001, section 270CF (Residential-use exclusion; s.270CF(5) mixed-use trap).
6. Capital Allowances Act 2001, section 270IA (Allowance statement requirement; s.270IA(2) treats qualifying expenditure as nil without statement).
7. TCGA 1992, section 37B (SBA cumulative add-back to disposal consideration for CGT).
8. HMRC Capital Allowances Manual, CA90000 (Structures and Buildings Allowance chapter), CA94550 (allowance statement format).
9. Gov.uk public guidance, Capital allowances: structures and buildings.

Related reading on this site: bucket sibling pages C1 (the four-axis decision framework pillar); C2 (balancing allowance and charge on P&M disposal: the contrasting Part 2 disposal mechanic); C5 (full expensing for companies on plant); C6 (commercial property fixtures and s.198 election). Adjacent existing pages: Capital Allowances on Commercial Property: what can claim.