When can land remediation relief be claimed?
Land remediation relief (LRR) can provide tax relief in all commercial property sectors where companies are subject to corporation tax. Unlike capital allowances, LRR is available to property investors and developers alike.
The types of relief are as follows:
- Owner occupier / investor rate - 150%
- Developer rate - 50%
- For loss making companies a tax credit (cash in hand) can be claimed – 24%
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 such as Japanese Knotweed, radon and arsenic.
Relief can be available on developments, regeneration projects, fit-outs and refurbishments.
The time limit for retrospective claims is up to 3 years.
LRR can provide tangible cash savings, in particular where the 150% owner occupier / investor rate (for UK companies only) is claimed.
LRR is often not maximised, as it must be actively claimed. If the savings are factored into appraisals at bid stage, prospective bidders may be able to enhance their bid accordingly.
Where property is held as an asset, such as a retail portfolio, the full 150% must be claimed in the year in which the expenditure was incurred. In cash terms this equates to a 30% saving (assuming 20% corporation tax) on all expenditure claimed on LRR.
Where property is traded (eg by developers) a 50% benefit is realised, as all construction expenditure (100%) is fully written off to the profit and loss account, enabling the excess over 50% to be claimed. The excess over 50% LRR is only available to claim on disposal of the property. In cash terms this equates to a 10% saving (assuming 20% corporation tax) on all expenditure claimed on LRR.
The only restrictions are that a company is not entitled to claim where any of the following applies:
- the land is in a contaminated state due to the claimant company
- the claimant company does not have a ‘major interest’ (freehold or a minimum lease of 7 years)
- the expenditure has been subsidised, for example by grant funding
- 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.
Derelict Land Relief
Derelict land relief was introduced by Finance Act 2009, to encourage abandoned sites to be brought back into productive use. To qualify, a site must be listed on the English National Land Use Database as being derelict since 1 April 1998. For qualifying sites, generous relief is available on demolishing and preparing the site for redevelopment.
Land Remediation/Derelict Land Tax Credit
If a UK company makes a loss for an accounting period in which it incurs expenditure on remediating contaminated or derelict land, it may elect 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. For both investors and developers, the cash return is equivalent to 24% of the expenditure incurred (16% x 150%).
Retrospective claims are available on expenditure incurred within two years from the year end within which the expenditure was incurred.