Relocating? Don't Forget Your Tax Relief

Land remediation relief (LRR) provides tax relief for those acquiring and remediating certain land. The relief is very generous and could make the decision to relocate easier.

What is LRR?

LRR allows companies to claim a corporation tax deduction for expenditure incurred in remediating certain contaminated/derelict sites.

What is land in a contaminated state?

The relevant property must be acquired in a contaminated state, excluding cases where Japanese knotweed is concerned. HM Revenue & Customs (HMRC) accept that LRR can be claimed in respect of Japanese knotweed even if this was not present at the site when acquired.

Land or buildings in the UK are classified in a contaminated state if there is contamination present as a result of industrial activity or certain natural contaminants (namely, radon, arsenic and Japanese knotweed) such that it is causing relevant harm, or there is a serious possibility that it could cause harm.

In lawful terms ‘relevant harm’ includes pollution of controlled waters, structural or other significant damage to buildings and structures or other structures or interference with buildings or other structures that significantly compromises their use.

What is land in a derelict state?

Land is considered to be in a derelict state if it is out of productive use and it is incapable of being brought back into productive use unless buildings or structures on it are removed.

The land must be derelict throughout the period starting earlier than 1 April 1998 and the date the land is acquired by the claimant company and the land must be derelict when acquired. LRR is not available to a company that allows property to become derelict and subsequently brings it back into productive use.

Polluter pays

LRR relief cannot be claimed by the polluter or anyone connected to the polluter. This applies whether the pollution occurred because of something the relevant polluter did or failed to do.

LRR is not available if the polluter retains any interest in the contaminated land, this can fall in to two categories:

Reversionary interest - where a lease of the land is granted.
Financial interest - where the land is sold, but subject to any right for the polluter to share in any future sale proceeds of the property.

What is qualifying expenditure?

To qualify for LRR the expenditure incurred must be on employee costs or materials or on certain sub-contracted land remediation. The expenditure must not be subsidised and cannot be incurred on landfill tax.

LRR is available if a company carries out an ‘options appraisal’ and decides on a remediation strategy that subsequently proves unsuccessful. Expenditure incurred on preparatory activities e.g. desk studies can also qualify for LRR, provided the company goes onto carry out the remediation.

For expenditure on derelict land to qualify for LRR , the expenditure must only be on preparatory works or on the removal of post tensioned concrete heavyweight construction, building foundations and machinery bases, reinforced concrete pilecaps/basements or below ground redundant services.

What is the amount of LRR that can be claimed?

Companies can deduct an amount equal to 150% of the cleanup cost when calculating their taxable profits. So for example if a company spends £150,000 on clean-up costs it can deduct £225,000 from its taxable profits. If the company is loss making it may be able to claim a cash payment from HMRC of an amount equal to 16% of any qualifying land remediation loss surrendered.