Vacant, contaminated or derelict land – time to revisit the tax relief
Updated: Jul 5
In 2001, contaminated land remediation relief was introduced to address market failure in brownfield regeneration. In 2009, it was amended and extended to include certain types of expenditure on long term derelict. By 2011, the Office of Tax Simplification (OTS) had identified it for abolition citing its failure to deliver the government’s original policy objective.
After a brief consultation the relief was saved, in part because of the industry response but also because of the already agreed removal of exemptions from landfill tax for soils and waste from contaminated sites.
In the view of government, removal would risk undermining its plans to support the housing and construction sectors through planning reforms and the release of large areas of publicly owned land for development.
What is striking about the above, is not the reprieve. In 2011, the estimated cost to the Exchequer of land remediation relief was £40 million per annum (averaging just under £31,000 for every company that claimed).
The real tragedy is that the rules governing the relief have remained unchanged. A set of rules that both government and the OTS admit have failed.
Why is this relevant now?
Vacant and derelict sites blight communities and the nations housing crisis has continued to grow unabated.
In England, there is estimated to be over 45,000 hectares of brownfield land with around 65% (29,000 hectares) either vacant or derelict. In 2012, the University of the West of England estimated that around 52% of all brownfield land (22,700 hectares) was suitable for housing and potentially over 975,000 homes.
In Scotland, there is an estimated 11,600 hectares of derelict and urban vacant land, two times the size of the City of Dundee.
If there are positives to come from Brexit, it surely must include the freedom to revisit all targeted investment reliefs beyond the restrictive provisions of EU state aid.
Why has the relief failed?
In short, it is only available to companies (with limited exceptions) and the primary intended beneficiaries (i.e. housing developers) must often wait many years until they receive the additional tax relief; and that is before you examine what qualifies and under what circumstance.
Take the inclusion of ‘long term derelict land’ which was introduced in 2009. To be eligible, the site must have been derelict since 1998 (that’s now 20 years+) to obtain limited additional relief on the removal of post tensioned concrete, foundations/bases, pilecaps, basements and redundant services.
The relief itself (an extra 50% deduction for tax purposes) equates to £9.50 for every £100 incurred. If you are loss making this can result in an equivalent cash credit of up to £24. If you are property owner and incur capital expenditure you will be allowed to deduct the same as a developer (i.e. up to 150%) but you will also need to exclude the underlying expenditure in any subsequent capital gains tax disposal.
It neither reflects the diversity of land ownership or sufficiently rewards the risks associated with significant remediation to make a meaningful impact on strategic planning and investment decisions.
What could be done to improve?
To start with the drafters could change the title to address the common misconception that expenditure on buildings is ineligible.
The tax allowance could also be replaced by an enhanced tax credit that is more closely aligned to when the expenditure is actually incurred (removing existing revenue/capital/tax credit complexity and aiding cash flow).
As part of a wider review into incentivising brownfield and derelict land regeneration the government could also look at ways to widen the relief (e.g. including more eligible expenditure for a limited period) to really kick start schemes. Perhaps even making it available to non-taxpayers owners and developers.
Following the abolition of Business Premises Renovation Allowances in April 2017, land remediation relief is one of the last key remaining direct tax incentives to encourage UK brownfield regeneration.
If you would like more details on tax relief for brownfield generation (including the types of expenditure eligible) please do not hesitate to contact us.