Land remediation relief

What is land remediation relief (LRR)?

LRR generally relates to contaminated land caused by industrial activity (including the existence of Japanese Knotweed) or the removal/management of asbestos in existing buildings.

Land remediation relief was introduced with the aim of encouraging the development of brownfield sites. The intention of the legislation is the clean-up of ‘environmental’ contamination in, on or over the land. The wording of the legislation means that it is open to much wider interpretation, giving a broad scope to claim.

LRR generally relates to contaminated land because of industrial activity (including the existence of Japanese Knotweed) or the removal/management of asbestos in existing buildings.

The relief is available at all stages:

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From initial development

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Demolition of buildings on an existing site

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Regeneration projects

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The fit-out and refurbishment of existing buildings

If contamination or pollution exists on a project or site, land remediation relief will be available in most cases to assist in the remediation process, effectively reducing the cost of each development.

The intention is to encourage redevelopment of derelict former industrial areas and inner city ‘brownfield’ sites by offering an enhanced tax incentive to cover additional costs incurred over and above normal site preparation. These are defined as additional costs incurred in preventing or minimising, or remedying or mitigating the effects of, any relevant harm or pollution caused by the contamination, or in restoring the land or water to its original state.

LRR is often not claimed at all or maximised when claimed. If the potential savings are factored into appraisals at bid stage, prospective bidders may be able to enhance their bid for purchasing sites accordingly. Also, the potential savings can be incorporated within the design and viability stages of a potential scheme to offset the additional costs of remediation.

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Tax savings

The relief is given at 150% for qualifying expenditure. Investors in property or owner occupiers (that did not originally pollute the land and/buildings) are entitled to claim the full 150% benefit. In cash terms this equates to a 37.5% saving (assuming 25% corporation tax) on all expenditure claimed on land remediation relief.

Where clients trade property (developers), a 50% benefit is realised as all construction expenditure (100%) is fully written off in any event to the P&L, enabling the extra over 50% to be claimed. In cash terms this equates to a 12.5% saving (assuming 25% corporation tax) on all expenditure claimed on land remediation relief.

Land remediation / derelict land tax credit

If a UK company makes a loss for an accounting period in which they incur expenditure on remediating contaminated or derelict land, it may elect to receive a payable credit from HMRC. The amount of tax credit which can be claimed is 16% of the qualifying LRR for the accounting period the claim relates to. The cash return is equivalent to 24% of the expenditure incurred (16% x 150%).

The only restrictions are that a company is not entitled to claim:

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if the land is in a contaminated state due to the claimant company (polluter pays principle),

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the claimant company must have acquired a ‘major interest’ in the land (freehold or a minimum lease of 7 years)

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relief cannot be claimed against subsidised expenditure such as grant funding or

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if the acquisition cost of the land was specifically discounted to account for the cost of remediation works and stated as such in the purchase agreement.

Land Remediation Relief is applicable to the companies incurring the expenditure.

Completed developments

Retrospective claims are available on expenditure incurred within two years from the year end within which the expenditure was incurred (maximum of 3 years) for investors in property or owner occupiers, with developers having a greater scope.

Derelict land relief

Derelict land relief was introduced by the Finance Act 2009. The intention of the legislation was to encourage abandoned sites to be brought back into productive use. In order to qualify, a site must be listed on the English National Land Use Database as being derelict since 1998 or have been derelict for 10 years. For qualifying sites, generous relief is available on demolishing and preparing the site for redevelopment.

Recent LRR consultations

There have been two consultations on LRR in the last year, and we await further details of any changes. The recent consultation highlighted limited use of the LRR legislation due to its specialist nature, but also the prohibitive nature of the derelict land relief requirements and the timelines involved. It is expected that the LRR legislation may be amended to encourage greater uptake of this valuable tax saving.