With the Government striving to meet its pledge to build 1.5 million new homes during the course of this Parliament, the use of brownfield sites is coming into sharper focus.
One tax incentive available to companies taking on the commercial risk of developing contaminated or derelict land is Land Remediation Relief, often referred to as LRR.
What is Land Remediation Relief?
Where a company acquires land in the UK that is either contaminated or derelict, expenditure incurred in carrying out qualifying remedial work may attract Land Remediation Relief.
For the purposes of the relief, land can also include any property situated on it.
If a claim is successful, LRR can provide a corporation tax deduction of 150% of the qualifying remediation expenditure.
Where the company is loss making at the time, it may instead be possible to surrender the land remediation loss for a 16% tax credit.
What counts as contaminated land?
A site may be considered contaminated as a result of substances or issues such as:
- Arsenic
- Arsenic compounds
- Radon
- Japanese knotweed
In these circumstances, the contamination must generally have been present at the time the company acquired the land.
There can, however, be exceptions.
For example, Japanese knotweed may appear on a site after it has been acquired through no fault of the purchasing company, such as through fly tipping. In this situation, LRR may still be available for the costs of making the land safe.
It is important that the company claiming the relief was not responsible for causing the contamination in the first place. It must also not have made the problem worse before carrying out the remediation work.
What counts as derelict land?
To qualify as derelict, the land must be out of productive use and incapable of being brought back into productive use unless buildings or structures on the site are removed.
The land must also have been derelict at the earlier of the date it was acquired or 1 April 1998.
What expenditure can qualify?
To be included within a Land Remediation Relief claim, the expenditure must be directly connected to the remediation work being carried out.
Qualifying costs can potentially include:
- Materials
- Staffing costs
- Subcontracted work
- Professional fees for advice on removing contamination or dealing with derelict structures
Staffing costs
Qualifying staffing expenditure may include:
- Salary costs
- Employer’s National Insurance contributions
- Company pension contributions
How much can be claimed depends on the amount of time an employee or director spends working on the land remediation project.
If less than 20% of their total working time during the accounting period is spent on remediation work, none of their staffing costs can be included within the LRR claim.
If more than 80% of their working time is spent on qualifying remediation work, the full cost can potentially be included.
Where the time spent falls between 20% and 80%, an appropriate proportion of the staffing costs may be claimed.
Could Land Remediation Relief apply to your development?
Developing contaminated or derelict land can involve significant additional costs, particularly where substantial remedial work is required before a site can be brought back into productive use.
For companies undertaking this type of development, Land Remediation Relief can therefore be a valuable corporation tax relief.
If you are acquiring or developing contaminated or derelict land and would like to understand whether your costs could qualify for Land Remediation Relief, Please contact us