Derelict or contaminated land can pose a dilemma to developers and investors alike as the cost of regenerating it can turn a financially viable project into an enviable one.
However, savings are available from the Government keen to encourage the redevelopment of contaminated sites.
Tax breaks are available to both developers and investors who either bring derelict land back into use or clean up land contaminated as a result of industrial processes or some natural contaminants. These tax breaks are often overlooked. By factoring in the land remediation relief savings into financial modeling at the bid stage, prospective bidders may be able to improve their bid accordingly.
The relief is available for investors in the year of expenditure, meaning it is particularly attractive to owners and occupiers as they will realise the benefit far quicker than other forms of tax relief. For developers, the benefit is available when they sell parts or the whole of the site.
What can be claimed?
Land remediation relief (LRR) is available to companies but not partnerships or individuals. The company claiming the relief needs to carry on a trade or a property letting business. They will be entitled to claim a 150% corporation tax relief for revenue and capital expenditure on certain costs incurred in cleaning up the contaminated or derelict land in the UK. If the company makes a loss after these extra cost deductions, it can claim a tax credit equal to 16% of any LRR for the accounting period the claim relates to.
Contaminated Land is land whose contamination is causing or has the potential to cause harm to living organisms, pollution to controlled waters, damage to the ecosystem or significant damage or interference with buildings. Such contamination needs to have occurred as a result of industrial activity. In addition, LRR is also available where natural contaminants such as Japanese knotweed, arsenic and radon are found. However, the cost of cleaning up a nuclear site or burial ground will not qualify for LRR.
Derelict Land is land that has been derelict continuously since 1 April 1998 or has been derelict for a period of 10 years. Claimants must show they were not responsible for the state of dereliction and they are not connected to the party who caused it. No relief is available if the works are required to be carried out by law.
How does it work?
Qualifying Expenditure includes employee costs and materials, some subcontracted works and any fees incurred directly in relation to the removal or decontamination works. Qualifying costs include preparatory work such as investigating and assessing the land before some action is taken to prevent, minimise, remedy or mitigate the effects of the pollution causing the contamination. However, no relief will be available where for example exploratory works established no asbestos was present.
The polluter pays rule means the land has to have been acquired in a contaminated state by the claimant company. The claimant company must not have caused the contamination by anything it has done or omitted to do. Therefore, if the claimant originally used asbestos in constructing the building, it will not be able to claim LRR when removing it. LRR will not be available to a tenant removing any contamination or dereliction caused by the landlord.
A developer buys land in a contaminated state in 2014. He remediates the land and sells the completed development a year later.
Cash tax saving as a result of LRR available in year of claim: £1,500,000 x 20% tax rate = £300,000
Questions & Answers
What is contaminated land?
For the purposes of this tax relief, it is where the land contains substances such as asbestos, Japanese Knotweed or sulphate resistant concrete which is causing harm or could possibly cause harm, pollute or possibly pollute controlled waters.
Is there a definition of contaminated land costs?
There is a general definition which is that you have incurred the costs, ‘preventing, minimising, remedying or mitigating any harm or pollution of land or controlled waters, by reason of which the land is in a contaminated state, or restoring the land or controlled waters to their former state’.
Who can claim this tax relief?
The relief is not available to individuals or partners, but a company that is a member of a partnership can claim relief in respect of its own share of the partnership’s qualifying land remediation expenditure.
What is the benefit of making a claim for Land Remediation Relief?
It entitles a company to claim an additional 50% for qualifying remediation expenditure as a trading expense, in the same year as the remediation expenditure.
How do I claim and is there a time limit?
For expenditure made on the capital account, you need to elect within 2 years of the accounts year end in which the expenditure was made. For property developers, the remediation expenditure is on the trading account and it is possible to look back and claim up to 4 years after the accounts year end of the qualifying expenditure. So it is possible to make retrospective claims.
Are there any conditions to claim this tax relief?
The land must be in the UK. The land must be acquired by the company for the purposes of its trade
What expenditure qualifies for Land Remediation Relief?
Expenditure on land which is in a contaminated state
Expenditure on land remediation directly or on its behalf
Expenditure on employee costs or materials is qualifying expenditure on subcontracted land remediation
Expenditure that would not have been incurred if the land had not been in a contaminated state
Non-subsidised expenditure (for example by the original polluter)
Are there any exclusions?
If you have already claimed capital allowances on the same expenditure
If you are the original polluter
What information do you need to identify if a claim is possible?
We start with the site Investigation and soil report, details of works undertaken and the remediation contractor’s priced tender and final account will be scrutinised to extract qualifying items for land remediation relief.
Does my accountant need to get involved?
As a specialist, we will liaise with your accountant to provide them with a fully disclosed report suitable for submission to HMRC. Your accountant will need only include the report with your tax return on submission to HMRC.
What if my company is making a loss?
It is possible to surrender that trading loss and receive a land remediation tax credit instead of equal to 16% of the total loss.
Are there any restrictions on receiving land remediation tax credits?
There are restrictions which are; the loss that can be exchanged for the tax credit must be no more than 50% of the qualifying land remediation expenditure for any particular accounting period.
The site has been acquired from a connected company, can I still claim?
If the connected company was the original polluter, then it is not possible.
What if my company is the polluter?
It is only possible to claim land remediation relief if you are not the original polluter
Can I get tax relief for removing foundations and concrete and underground services diversions?
It is possible if the land qualifies as derelict land and has been in a derelict state since acquisition and at least since 1 April 1998 and incapable of productive use unless remediated.
What if I already claimed capital allowances on this derelict land?
Relief is not available for capital expenditure for which a claim for capital allowances has already been made, or could be made.
If you have spent more than £200,000 on land remediation, please contact us on: