Land Remediation Relief Claims

Land Remediation Relief is a mechanism by which businesses can claim Corporation Tax relief for efforts to reclaim contaminated or derelict land & buildings. At 150%, it is one of the most generous tax reliefs available, and any business incurring remediation costs should investigate whether or not it can claim Land Remediation Relief to offset its losses.

The scheme has made it more cost-effective to restore derelict or contaminated land into use, but it is important to understand it fully before making a claim. As with any tax-saving efforts, legal compliance is of the utmost importance and the potential penalties can be severe.

The expert capital allowances accountants at Monetta have a wealth of experience in advising commercial property owners on tax reliefs and savings. If you are involved in remediating land or buildings, contact our team to learn how we can minimise land remediation expenditure and structure your business decisions in a tax-efficient way. Contact your local Monetta office or use our online enquiry form to request a call back.

What Is Land Remediation Relief?

Introduced in 2001, Land Remediation Relief is a valuable tax deduction available to companies remediating land or buildings. It allows for 150% of the cost of cleaning up contamination to be set aside as a tax relief or a tax credit for loss-making companies. Its introduction was an acknowledgement by the government that many brownfield sites and buildings were being overlooked due to increasing costs of cleaning and remediating.

In 2009, Land Remediation Relief was extended to address market failure in bringing long term derelict land back into use, and create a Corporation Tax incentive to rehabilitate brownfield land.

Land Remediation Relief is available to both commercial and residential property owners, whether they are incurring capital or revenue expenditure. It can also be claimed by leaseholders of a property, so long as they have a minimum seven-year lease in place. However, because it is a Corporation Tax relief, it is only available to companies and not individuals. Additionally, those responsible for creating the contamination in the first instance cannot claim the tax relief.

Claimants can make use of Land Remediation Relief either by:

  • Reducing taxable profits by 150% of its qualifying expenditure; or
  • Surrendering losses for a tax credit at 16%.

What Is Contamination?

Contamination is defined as the presence of materials that can cause ‘relevant harm’ to land, buildings or persons. The relief is available capital expenditure incurred to neutralise the harmful substances, whether by decontamination or removal. It could include removal / decontamination of contaminated soil and water, asbestos, treatment of harmful organisms, treatment of invasive plants (such as Japanese Knotweed) and many other types of treatments that contaminated land may need.

HMRC defines relevant harm as something which could have a “significant adverse impact on the health of humans or animals or damage to buildings that has a real impact on the way the building is used.”

Conditions and Exclusions

As you may expect, there will be some conditions and exclusions to claiming Land Remediation Relief. It is only available:

  • to Corporation Tax payers, and not partnerships or sole traders.
  • for costs that would not have been incurred if the land was not contaminated.
  • if contamination risks causing harm or is causing harm to groundwater, streams, rivers and coastal waters.

The relief may not be available if the land or buildings have been subsidised due to the contamination, or if monies have been provided to undertake the decontamination works. Similarly, if the contaminated or derelict state of the land was caused by the claimant company or a connected party, the relief will generally be unavailable.

What Are the Benefits of this Tax Relief?

A claim for Land Remediation Relief reduces a company’s taxable profits and, in situations where the company is not making a profit, losses can be surrendered for a 16% tax credit.

The tax benefit of the relief will be determined by who the claimant is. Property developers would already be writing off the costs of construction (and thus remediation) and therefore will benefit from the 50% uplift. Property investors and owner occupiers will receive no tax benefit from undertaking capital improvement works and therefore will benefit from a 150% tax relief.

The below example consists of a property developer who incurs revenue expenditure and therefore can already write the costs of remediation off; however, by utilising the relief, they will benefit from an additional 50% write-off.

£200,000 of remediating land

Taxable profit before deductions

Cost of remediating land

Tax payable (with no LRR uplift)

Tax payable (with LRR uplift)

Property developer

£500,000

£200,000

£75,000

£50,000

Property investor or owner occupier

£500,000

 

Not allowable

£125,000

 

£50,000

 

The second claimant is a property investor or someone who has purchased the property for owner occupation. They may need to capitalise the costs incurred and therefore would not see any immediate tax benefit; however electing to convert the expenditure as Land Remediation Relief will provide them with a 150% cost write-off.

What Is Qualifying Expenditure?

In the main, the cost of contracting to a specialist contractor for the remediation of land could qualify for this relief. However in addition to this, labour and material costs paid to a specialist contractor to be directly used in the remediation work may also qualify. In addition, employee costs directly and actively engaged in the relevant land remediation and professional fees could be considered.

Timing of a Land Remediation Relief Claim

The accounting treatment determines when a company can claim Land Remediation Relief for revenue expenditure. Companies incurring revenue expenditure would claim the relief in the accounting period where the relevant expenditure is deducted, by calculating the profits in accordance with generally accepted accounting practice (GAAP).

A company incurring capital expenditure must make a claim for the relief in its tax return for the relevant accounting period. In addition, a company must elect to treat the qualifying capital expenditure as a deduction in computing taxable profits. This must be done within two years of the end of the accounting period in which the expenditure is incurred.

What Is Derelict Land Remediation Relief?

Similar to Contaminated Land Remediation Relief, Derelict Land Remediation Relief is an incentive that provides a 150% tax deduction for the qualifying costs associated with remediating derelict land. As Landfill Tax limits have risen over the last ten years, it is surprising that this tax relief is not taken more readily.

Land or buildings containing any contamination is not an attractive selling point, and many would-be investors might be tempted to walk away unless the vendor offers a suitable discount.

However, this may not be the most cost-effective approach. If the vendor discounts the land or building as a result of the contamination, the opportunity to obtain a 150% tax relief will be lost.

What Is Dereliction?

To be considered derelict, the land must be out of productive use and be incapable of being brought back into business use unless buildings or structures on it are removed. There are no stipulations on previous use of the site. However, to qualify, it must be listed as derelict or have been derelict for at least 10 years.

To count as long-term derelict land, the land must have been derelict since the earlier of:

  • Its acquisition by the claimant company, or a connected party; or
  • 1st April 1998.

Relief is given for expenditure incurred in removing structures left from previous occupation of the site. These can include any of the following structures:

  • Post-tensioned concrete
  • Building foundations and machinery structures
  • Reinforced concrete pile caps
  • Reinforced concrete basements
  • Below ground redundant services e.g. gas, water, electricity and communications.

Whether you are claiming Land Remediation Relief or Derelict Land Relief, compliance with the legislation and documentation to prove this are key to maximise the relief correctly. Speak to an expert capital allowances advisor for guidance on meeting these requirements.

Why Choose Monetta?

Land Remediation Relief can be a valuable form of tax relief when claimed correctly. While there are a number of considerations and exclusions, early involvement by an advisor can help ensure that these obstacles are avoided and the relief is correctly maximised.

The team at Monetta has a wealth of expertise in claiming Land Remediation Relief and can support any type of UK property business. With a network of offices in the North West, we can advise on UK Corporation Tax rules for businesses throughout the country, and even help you to file the relevant company tax return to take advantage of this relief. We can also advise you on qualifying expenditure and help you to make plans regarding remediating contaminated land in a tax-efficient and cost-effective way.

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If you represent a trade or property business and you need advice and accounting services from commercial property experts, contact Monetta today. Call your local Monetta office or use our online enquiry form to request a call back.

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