Land Remediation Relief
Land Remediation Relief (LRR) was introduced in 2001 to encourage the bringing back into use of land that had been blighted by previous use for industrial purposes. The relief was then extended to include bringing long term derelict land back into productive use. The relief applies to both capital and revenue expenditure.
LRR is a corporation tax relief which is available where companies acquire land in a contaminated or derelict condition. With land increasingly at a premium it is more and more likely that brown field regeneration will be a common option for re-development.
LRR can provide corporation tax relief in all commercial property sectors. Unlike Capital Allowances, LRR is not only available to property investors but also property developers.
Qualifying costs include the remediation of contaminated land, removal of asbestos from buildings, breaking-out buried structures and the treatment of harmful organisms and naturally occurring contaminants for example, Japanese Knotweed, radon and arsenic.
Derelict Land
Derelict Land
The relief also includes bringing derelict land back into productive use. To qualify as being derelict, it must either be out of productive use, be incapable of being brought back into productive use unless buildings or structures on it are removed.
The land must have been derelict since the earlier of when the site was acquired by the claimant company, or a connected party; or 1 April 1998.
Relief is given for expenditure incurred in removing the following structures left from any previous occupation of the site:
– post tensioned concrete heavyweight construction,
– building foundations and machinery bases
– reinforced concrete pilecaps,
– reinforced concrete basements
– below ground redundant services (gas, water electricity and telecommunications).
Qualifying expenditure includes preliminary costs and professional fees that relate to the works. There is no relief unless the remediation work is carried out.
Land In A Contaminated State
Land In A Contaminated State
This scheme applies to expenditure incurred on or after 1 April 2009 for cleaning up land acquired in a contaminated state. LRR provides an 100% deduction, plus an additional 50%, for qualifying costs incurred by companies in cleaning up land acquired from third parties in a contaminated state.
Land is deemed contaminated if past industrial activity has caused, or poses a serious risk of causing, harm to health, buildings, the environment, or has significantly polluted water sources. Relief is available only if remediation work is completed, and applies to both capital and revenue expenditure, provided companies elect to treat qualifying capital expenditure as a deduction within two years of the end of the accounting period.
Companies can also claim an additional 50% deduction of qualifying expenditure against taxable profits. Claims can be made within general Corporation Tax Self-Assessment time limits, and no specific form is required; timely submission of a computation suffices.
If a company incurs a loss, it can surrender the LRR-related loss for a tax credit from the Government, which must be claimed through a CT self-assessment or amended self-assessment.
Land Remediation Relief FAQ'S
Read our FAQ's to get the answers you need right now.
What Are The Benefits?
By utilising LRR, companies can reduce their taxable profits and therefore improve cashflow. LRR provides enhanced tax relief on 150% of the expenditure incurred on remediation, but this is only available to UK companies.
LRR is often not maximised as it must be actively claimed. For companies in competitive tender situations, these savings can be factored in to quotes to enhance their chances with the bids.
What Are The Restrictions
The “polluter pays” principle applies to LRR, which means that the companies that are responsible or connected with those responsible for the contamination cannot claim LRR.
Other restrictions include:
- LRR cannot be claimed against subsidised expenditure such as grant funding.
- If the acquisition cost of the land was specifically discounted in order to account for the cost of remediation works and stated as such in the purchase agreement the relief is not available.
- Claims cannon be made in respect of nuclear sites.
Can You Claim In Retrospect?
You can make a retrospective claim for LRR if you claim within two years from the year end in which the expenditure on remediation was incurred.
For example, if a client’s year end is 31 March 2016, any expenditure incurred after 1 April 2013 can qualify for tax relief, therefore immediate tax savings can still be realised.
How Much Tax Credit Can Be Claimed?
If a UK company is loss making for an accounting period in which they incur expenditure on remediating contaminated or derelict land, they are able 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.
What Are Examples Of LRR Claimable Items
Below are a few examples of the types of works where LRR can be successfully claimed against:
- Remediation of contaminated sites
- Asbestos management; whether it be extraction or containment works qualify for land remediation relief, including all associated works (e.g. prelims, professional fees, prolongation etc.).
- Gassing measures; membranes, suspended slabs
- Concrete; sulphate resistant
- Japanese Knotweed
- Fees; direct remediation and various design team fees
- Prolongation; unforeseen remediation works
Land Remediation Relief is available on both capital and revenue expenditure. However, the company must elect, within two years of the end of the accounting period in which the expenditure is incurred, to treat qualifying capital expenditure as a deduction in computing their taxable profits.
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