How to claim Land Remediation Relief

When can Land Remediation Relief be claimed?

Introduced in 2001, and changed in 2009, Land Remediation Relief (LRR) is still one of the most generous tax reliefs for property developers and investors. It can give a tax deduction of up to one and a half times the money spent on cleaning up brownfield sites and buildings.

We are increasingly coming across housebuilders and developers who are finding it more difficult to source sites for new houses which is leading them to consider these more marginal sites such as ex-industrial and often derelict ‘brownfield sites’.

LDS Boost partner Cowgills discusses what they’re seeing in the market currently.

Check Land Remediation Relief at the outset

Whilst ordinarily, a housebuilder or other developer who buys a site then remediates it will be eligible for LRR, Cowgills is coming across more and more situations where housebuilders or developers are building or supplying sites for housing associations and other non-tax paying entities such as pension funds.

If the deals have been structured with LRR not considered fully, often the housebuilder or developer has not been able to claim any relief.

It is recommended when structuring complex site assembly deals with housing associations and other end users of brownfield sites, you take professional tax advice in order to ensure that land remediation relief is not unnecessarily lost.

What exactly is Land Remediation Relief?

LRR is also known as Contaminated Land Tax Relief and can provide tax relief in all commercial property sectors where businesses are subject to corporation tax.

Unlike capital allowances, LRR is available to both housebuilders, property investors and developers alike.

It was introduced in 2001, in an attempt to incentivise the use of brownfield sites rather than developing on greenbelt. There is often a misconception that it is only available on land remediation, but it can be equally apply for buildings in the same way.

What Land Remediation Reliefs are available?

• Owner occupier/investor rate – 150%
• Developer rate – 50%
• Loss making companies can claim a tax credit – 24%

To be eligible, the land or building must be owned by a limited company which then undertakes qualifying remediation. The land or building must be owned either as a freehold or leasehold with at least a 7 year term at inception.

Broadly speaking, to qualify for relief the land or buildings must pose a possibility of ‘serious harm’ to persons and the environment, ‘damage’ to buildings, or pollution to water courses.

Common examples of qualifying contamination and measures to remove or mitigate the risks include:

• Asbestos e.g. roofing panels – complete removal or capping / encapsulating qualifies
• Sulphate contamination in soil and concrete
• Hydrocarbon contamination e.g. fuels, oils etc. or dealing with disused tanks
• Any pollution from previous industrial activity e.g. heavy metal contaminants from industrial processes
• Ground / landfill gases – any protection measures e.g. membranes / ventilation systems required in buildings or foundations
• Japanese Knotweed
• Radon protection measures
• Arsenic
• Removal of redundant utility services and concrete foundations on sites or part of sites derelict since April 1998

To qualify for the tax relief, the money must be spent on the remediation of the land. Some examples of qualifying costs include; Excavations, surveys, soil/groundwater treatment to scope out remediation process; staff wages & employers NIC where more than 20% of employee time is spent on remediation; materials directly employed in the remediation and payments to sub-contractors directly engaged in the remediation.

What about completed developments?

It is possible to make retrospective claims and the time limit for this is up to 3 years from when the expenditure is incurred or, in the case of a developer, when the remediation costs are expensed on the sale of the completed development.

Although the tax relief available is generous, claims should be properly presented to ensure they meet the requirements of HMRC. HMRC review all claims carefully, therefore, it’s essential to seek advice from experienced tax advisers, who are familiar with the criteria and process.

James Greenhalgh

Tax Director at Cowgills

james.greenhalgh@cowgills.co.uk / 01204 414 243