First introduced in 2001 and subsequently updated in Corporation Tax Act 2009, Land Remediation Relief is a valuable and frequently overlooked tax incentive.
Now, more than ever, companies are realising the importance of developing their Corporate Social Responsibility (‘CSR’) policy with many focusing on environmental awareness.
The Land Remediation Relief measures were introduced by the UK government to encourage commercial property owners, investors and developers acquiring property to embrace good environmental and sustainability strategies. Expenditure on remedying affected land therefore compliments a high quality CSR strategy.
What is Land Remediation Relief and how to claim it?
Land Remediation Relief is a corporation tax incentive which is available to companies that acquire, from a third party, contaminated or derelict land in the UK, for the purpose of their trade or UK property business. The relief can also apply to non-UK resident companies that carry on a UK property business or have some other sourced property income.
Companies can claim an enhanced deduction of 150% for certain categories of expenditure in remediating the contaminated land or bringing the derelict land back into use. These costs may be either capital or revenue in nature and the relief includes expenditure relating to staffing costs, professional fees, materials and certain sub-contracted costs.
In order to qualify for the relief a company must also hold a ‘major interest’ in the land or property (a freehold or a minimum seven year lease) and must make an election by including the claim in their respective corporation tax return.
It might be worth noting that the ‘polluter pays’ principle applies, such that no relief can be claimed if the company, or any party connected to the company, is responsible for causing the contamination or dereliction.
So what is ‘contaminated’ or ‘derelict’ land?
Land is in a ‘contaminated state’ if, and only if, the contamination is in, on or under the land, and relevant harm is being caused, or there is a serious possibility that relevant harm to living organisms, pollution to controlled waters, damage to ecosystems or significant damage or interference with buildings can occur.
The contamination must also have been caused as a result of industrial activities, except for the presence of natural contaminants such as arsenic, radon or Japanese knotweed, with the most common occurring contamination relating to the identification, removal and treatment of asbestos.
Relief can also be claimed for Derelict Land which is land not in productive use since April 1998 and which cannot be put into productive use without the removal of buildings and other structures. This is often building foundations, machinery basis, reinforced concrete pile caps or redundant services located underground.
The corporation tax benefit of Land Remediation Relief
Land Remediation Relief can provide corporation tax benefits under one of two methods, depending on whether the company is profit or loss making.
For companies with a taxable profit, the enhanced qualifying expenditure can be deducted from the company’s profits, reducing the corporation tax liability. The total relief is 150% of the qualifying costs incurred for either revenue or capital purposes.
For example, a company incurring qualifying spend of £100k could receive an additional corporation tax deduction of £50k in addition to the £100k deducted for the initial spend. With the main rate of corporation tax now at 25%, enhanced deductions can be valuable to companies, illustrated by a tax saving of £37.5k on the total enhanced qualifying expenditure above.
Alternatively, if a company is not profitable it may choose to surrender its tax loss for cash. Broadly this can result in a tax credit of 16% of the lower of the tax loss created or 150% of the related qualifying land remediation expenditure.
A company with a trading loss of £200k and a qualifying spend of £100k would receive an enhanced deduction of £150k (being £100k uplifted by 50%). The total enhancement expenditure of £150k could be surrendered for a tax credit up to £24k.
In summary
Land Remediation Relief is a generous tax incentive for companies to regenerate contaminated land, while contributing to both local communities and environmental sustainability.
The legislation can be complex and it is important that due care is taken to ensure expenditure qualifies for the relief and that appropriate documentation is in place to support claims.
Our team of tax experts can provide assistance in identifying, assessing qualifying claims, and ensuring compliance of claims included within the relevant corporation tax return form.
