Remediation of contaminated land

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Land Remediation Tax Relief

Land Remediation Tax Relief can provide potential tax savings for UK Corporation Tax Payers, and it is available to companies in all commercial property sectors, including property investors and developers.

If a company purchases land which needs to be restored it could be eligible to make a claim. A claim is made against the expenditure incurred, as a result of restoring the land to its original state. Both capital and revenue expenditure can apply.

Land Remediation Tax Relief can be claimed on derelict land and contaminated land. Where the contamination poses a significant threat to human health or the environment and therefore has to undergo a ‘clean up’, a claim can be made.

What is Land Remediation Tax Relief?

Companies that acquire contaminated or derelict land for the purposes of their trade or UK property business can claim an enhanced deduction of 50% or 150% for the clean-up costs. This relief can be claimed on past developments and can add value to future projects.

Land remediation

What qualifies for Land Remediation Tax Relief?

  • toxic waste

    Relevant expenditure on land which is in a contaminated state

  • crossed out toxic waste

    Expenditure that would not have been incurred if the land had not been in a contaminated state

  • commercial property

    Expenditure on relevant land remediation directly undertaken by the company or on its behalf

  • worker

    Expenditure incurred on employee costs and materials or is qualifying expenditure on sub-contracted land remediation

  • money

    Non-subsidised expenditure

The rate of relief depends upon the status of the company claiming the relief:

  • 150%

    Owner occupier/investor rate

  • 50%

    Developer rate

  • 28.5%

    For profit-making companies

  • 24%

    For loss-making companies, a tax credit (cash in hand) can be claimed

What is relevant land remediation expenditure?

This is where costs have been incurred for the purpose of:

  • Remedying or mitigating any harm, by reason of which the land is in a contaminated state.
  • Restoring the land or polluted waters to their former state.

Restoring the land would include the removal and replacement of contaminated soil and water, the treatment of harmful organisms, the removal of natural contaminants (for example, radon and arsenic), the removal of buried structures, and the removal and treatment of invasive plants (such as Japanese Knotweed).

The relief is also available for the removal of asbestos from buildings, post-tensioned concrete, building and machinery foundations, below-ground redundant services such as piping, and reinforced concrete basements.

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Conditions of Land Remediation Tax Relief

To qualify for Land Remediation Tax Relief the following must apply:

  • the land must be in the UK;
  • the land must be acquired by the company for the purposes of its trade or property rental business;
  • on the acquisition of the land, all or part of the land was in a contaminated state; and
  • The expenditure must be paid for by the company making the claim.
conditions

Land Remediation Tax Relief Exclusions

Where a company, or a person with a relevant connection, is treated as the polluter then that company cannot claim Land Remediation Tax Relief on any part of the cost of cleaning up that site.

Other exclusions are:

  • the expenditure has already 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.
exclusions

Qualifying land remediation loss – examples

Note that in the below examples, the land remediation expenditure has been treated as revenue expenditure. If the land remediation expenditure has been capitalised, the total additional tax relief would equate to 150%.

Example 1 – Profit making Company

Assume that a trading profit is made in the sum of £500,000, which includes land remediation expenditure of £100,000.

  • Trading profit before LRR – 500,000
  • Land remediation costs – 100,000
  • Extra deduction (50%) – 50,000
  • Tax relief at £150,000 x 19% ** = 28,500

** This equates to tax savings at 28.5% on the original LRR costs of £100,000

Example 2 – Loss-making Company

Assume that a trading loss is made in the sum of £500,000, which includes land remediation expenditure of £100,000.

  • Trading loss before LRR – 500,000
  • Land remediation costs – 100,000
  • Extra deduction (50%) – 50,000
  • Tax credit at £150,000 x 16% ** = 24,000

** This equates to a 24% tax credit on the original expenditure of £100,000

Is there a time limit to claim Land Remediation Tax Relief?

Owner, occupiers, and investors have a window of 2 years from the end of the accounting period in which the expenditure is incurred.

Developers have 4 years from the end of the accounting period in which the property was sold.

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