Updated: Jun 15, 2020
If you encounter contamination in your building or site remediation works then your company could be entitled to an enhanced level of tax relief (up to £28.50 for every £100 incurred assuming a corporation tax rate of 19%) for the additional costs involved.
What is land remediation relief?
Land remediation relief (LRR) is a corporation tax relief that is designed to encourage developers and property owners to bring brownfield sites back into productive use. Unlike capital allowances, LRR is available to property investors and developers with the following potential cash returns on qualifying expenditure elements:
Property owners and occupiers – up to 28.5% (150% x 19%)
Developers, housebuilders etc. – up to 9.5% (50% x 19%)
Loss making companies (cash tax credit) – up to 24% (150% x 16%)
Property owners and occupiers that dispose of a property that has been subject to a LRR claim will need to exclude the 100% qualifying expenditure from their capital gains tax computations.
Qualifying land remediation expenditure
Qualifying land remediation expenditure broadly falls into three categories:
Contamination arising from a previous industrial activity (which can include the buildings original construction) and may cover things like asbestos, lead, oil, sulphates, PCBs or other harmful substances on your site.
Exempted natural contaminants (which include arsenic, radon and japanese knotweed).
Removal of certain concrete obstructions (e.g. reinforced concrete pilecaps) and underground services on long term derelict land (vacant and in disuse since 1 April 1998).
Qualifying expenditure is generally limited to the additional cost of remediating the site. For example, if you had to import an extra layer of topsoil (e.g. to act as a capping layer over soil contaminants) you will have to exclude what you would have normally provided from any claim.
Risk and reward
LRR is designed to reward the company that ultimately bears the risks of site remediation and has not done anything to cause or facilitate the harm being caused (e.g. through inaction).
You must own a major interest in the site when the expenditure is incurred (a freehold or lease with a minimum length of 7 years) and you cannot be responsible or connected (directly or indirectly) with the person that caused the original pollution.
If you receive a grant towards the remediation works your claim will be restricted. Similarly, if you have negotiated a discount in the original purchase or development agreement reflective of the contamination costs involved you will need to reflect this in any claim.
Interaction with capital allowances
Property owners and occupiers are currently not able to claim LRR on expenditure that could qualify for capital allowances (e.g. asbestos lagging around services pipes); however, this general exclusion is set to be disregarded for expenditure that is eligible for the new Structures and Buildings Allowances (SBAs) meaning that qualifying site or building remediation should remain eligible and be claimed accordingly.
Claim Time Limits
Claims for LRR should generally be made within 2 years from the end of the chargeable period in which the qualifying expenditure is incurred. Developers that only recognise such expenditure in their accounts when the completed assets are sold will often find they are still eligible to make claims long after the original expenditure has been incurred.
At Furasta Consulting we have significant experience of land remediation claims (including negotiation with HM Revenue & Custom’s LRR specialists) and if you would like further details please do not hesitate to get in touch.