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Against a backdrop of corporate responsibility and increasing environmental awareness, the UK government has introduced a range of measures over the past couple of years to encourage businesses to adopt improved environmental and sustainability strategies.
However, one tax incentive that has been in place since 2001 and subsequently updated in 2009 is Land Remediation Relief (LRR). This relief can often be overlooked, but it offers businesses significant tax reliefs for cleaning up brownfield sites and buildings, and it aligns with the current Labour government’s housing, construction and economic growth plans.
LRR is a corporation tax relief available to companies (including non-resident landlord companies) that acquire contaminated or derelict land in the UK, for the purposes of their trade or UK property business. The claimant company must have a lease/freehold of at least seven years.
The relief is not available to individuals or partnerships. However, a company that is a member of a partnership can claim relief for its share of the partnership’s qualifying land remediation expenditure.
LRR provides a deduction of 100%, plus an additional deduction of 50%, for qualifying expenditure incurred by companies in cleaning up contaminated land acquired from a third party.
Both property investor companies and property developer companies may claim on qualifying expenditure that is either capitalised as an investment or expensed as a development cost. Irrespective of whether the qualifying costs are capitalised or expensed, the 150% relief is still available.
Land is considered to be in a contaminated state if contamination is causing, or has the serious potential to cause, harm to living organisms, pollution to controlled waters, damage to the ecosystem or significant damage or interference with buildings.
The contamination must have arisen as a result of business activities, except in the case of Japanese knotweed, radon or arsenic, which may qualify for the relief even if it is not present because of industrial activity.
An extension to the remediation relief covers ‘derelict’ land, constituting land which has been unused since April 1998 and requires the removal of building foundations, reinforced concrete pilecaps and reinforced concrete basements, to name a few.
Qualifying costs include the removal of asbestos from buildings, breaking out buried structures and the treatment of harmful organisms and naturally occurring contaminants such as Japanese knotweed, radon and arsenic.
The costs can be either capital or revenue in nature and can include expenditure on materials, staffing costs, professional fees and certain sub-contracted costs.
Subsidised expenditure will not qualify for relief.
Companies carrying on a trade with sufficient profits to cover the expenditure will receive a corporation tax deduction for 150% of the qualifying costs.
A loss-making company is entitled to a tax credit equal to 16% of the qualifying land remediation loss surrendered. For example, if a loss-making company spends £50,000 on qualifying remediation, it can claim a £75,000 deduction, and if it surrenders this amount for a tax credit, it could receive a cash repayment of £12,000.
LRR is frequently overlooked as a relief and often not maximised by businesses as it must be actively claimed in the company tax return. The claim needs to be made within two years of the year end in which land remediation costs are incurred. Crowe have experience of preparing land remediation claims for several clients.
For further information or assistance on LRR, please contact Peter Bowles, or your usual Crowe contact.
