Land remediation relief (LRR) is a useful tax relief that can sometimes be overlooked. It is worth checking if it is applicable as it can either reduce profits or result in a repayment for the company making the claim.
LRR can provide tax relief for all commercial property sectors where the companies are subject to corporation tax; the relief is available to both property investors and developers.
The time limit for making a claim is up to three years, i.e. a claim can be made for expenditure incurred within two years from the year end of the accounting period in which it was incurred.
What are the types of land remediation relief?
There are three types of relief available, each offering different rates of tax relief:
- Owner occupier/investor rate – 150%;
- Developer rate – 50%; and
- Loss making companies tax credit (cash in hand) can also be claimed – 24%
An owner occupier/investor will typically hold the land as an asset, whereas a developer would normally be trading the land and therefore the cost would be classified as stock. In the case of a developer the relief can be claimed at the point that all construction expenditure is fully written off to the profit and loss account.
What costs qualify for Land Remediation Relief?
Qualifying costs for LRR 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.
Relevant land remediation expenses are any costs incurred for preventing, minimising, remedying or mitigating harm, or pollution of controlled waters, by reason of which the land is in a contaminated state, or also for restoring land or polluted waters to their former state. Relief can be available on developments, regeneration projects, fit-outs and refurbishments. For example, if you purchase a building for renovation that is found to contain asbestos, the cost of removing the asbestos can be offset against tax using LRR.
To qualify for LRR the following conditions must apply:
- The land or building must be in the UK;
- The land or building must be acquired by the company for the purposes of its trade or property rental business;
- The land or building must have already been in a fully or partly contaminated state when it was originally purchased.
A claim for LRR will not be available if:
- The land is in a contaminated state due to the action of the claimant company;
- The claimant does not have a ‘major interest’ (freehold or minimum lease of seven years)
- The expenditure has been subsidised, for example by grant funding
- The acquisition cost of the land was specifically discounted to take into account the cost of the remediation work and this is stated in the purchase agreement.
If you think you may qualify for land remediation relief please contact RJP via partners@rjp.co.uk.