By Neil Driver, Director at Davis Grant
Hundreds of property developments across the UK that are undertaken on contaminated land could benefit from a unique tax relief that reduces a company’s Corporation Tax bill or provides funding via tax credits.
With more and more building projects being built on previously developed, derelict and contaminated land, there is the possibility that lots of developers could benefit from Land Remediation Relief (LRR).
Under this tax relief, taxable profits are reduced, which in turn reduces a businesses Corporation Tax liability for the year.
In some cases, this may mean that owner-occupiers or property investors can benefit from up to 150 per cent Corporation Tax relief from qualifying remediation expenditure, while even loss-making businesses can receive a 24 per cent tax credit. Meanwhile, developers can receive Corporation Tax relief of 50 per cent.
Qualifying expenditure for LRR includes contaminated land costs, which are defined as those incurred in, “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”.
The relief, therefore, only relates to any remediation costs involved in improvements to contaminated land, including:
- the removal of asbestos from buildings
- breaking-out buried structures
- the treatment of harmful organisms and naturally occurring contaminants, such as radon and arsenic.
Land is considered contaminated if there is something in, on or under the land that causes ‘relevant harm’, or if there is a serious possibility that ‘relevant harm’ could be caused in future.
The relief only applies to businesses and not to individuals or partnerships. Companies that are a member of a partnership can, however, still make an election in respect of its share of the partnership’s land remediation expenditure, as long as it satisfies the necessary criteria.
A company may also be excluded from the relief if it has already claimed capital allowances on the same expenditure or it is the original polluter, or is connected to the original polluter.
The relief can only be used for land in the UK that is, or was, acquired by the company for its trade or property business, and at the time the company acquired the land at least part of it was in a contaminated or derelict state.
The company must also have incurred revenue or capital expenditure on qualifying land remediation work in respect of the land.
Claims for the scheme are done via a company’s usual Corporation Tax relief return, but there are various conditions that can affect when a company can or should claim LRR.
This is a generous relief, which is fairly underutilised at the moment. However, with many more construction projects relying on contaminated and derelict land, developers and investors should assess whether they may be eligible to make a claim via this scheme.
Considering the complexity of the scheme and the steps that need to be taken to determine eligibility for the relief it is highly recommended that professional advice is sought beforehand.