Land Remediation Relief

Land Remediation Relief (LRR) is a corporation tax relief, which allows certain companies that acquire contaminated or derelict land to claim an enhanced (150%) deduction for corporation tax purposes on the expenditure incurred remedying the land and buildings.

How to qualify for LRR

To qualify for the relief, a company must acquire UK land for the purposes of their trade or property business. Generally, the land must have been in a contaminated state at the time of acquisition (unless contamination is due to Japanese knotweed). LRR is intended to incentivise companies to acquire contaminated land and bring it back into use and, as such, relief is not available where the contamination was caused by the company itself or a connected party (the ‘polluter pays’ principle). Derelict land must have been out of productive use since 1 April 1998 or the date of acquisition, if earlier, to qualify for relief (that is to say, the relief is focused on land which is long-term, rather than temporarily, derelict).

The enhanced deduction is available for both relevant capital costs and revenue costs, including materials used in clean up works and relevant staffing costs. This can provide substantial commercial benefits, which can have a direct effect on the viability of the remediation work and wider commercial projects. The relief is particularly valuable for property investors or owner-occupiers, as it accelerates the deduction for capital costs, which would usually only be taken into account on the eventual disposal of the property.

In the case of both capital and revenue costs the company must actively claim the enhanced deduction, usually within two years of the end of the accounting period in which the expenditure was incurred.

Where the enhanced deduction generates a ‘qualifying land remediation loss’, that loss can be surrendered for a land remediation tax credit (16% of the qualifying loss) payable to the surrendering company.

LRR is a specialist area and the legislative provisions are complex. It is important not just to ensure that qualifying costs are correctly identified but that the interaction with other areas of the corporate tax regime are taken into account. Relief is not available, for instance, on any costs which qualify for capital allowances.

Undertaking detailed analysis as early as possible in a land remediation project helps ensure that you identify all relevant costs and, importantly, retain sufficient evidence for a successful claim. Failing to do so potentially gives rise to penalties, interest and additional costs in dealing with HMRC.

In light of these complexities and potential financial penalties, it is important that you get support when making your LRR claim to ensure that it is correct, your tax relief maximised, and your project commercially sustainable.

Our Land Remediation Relief services

Our specialist team can assist you with the following:

• Structuring property developments, redevelopment projects and other regeneration activities in connection with contaminated or derelict land.
• Analysing expenditure and LRR eligibility.
• Preparing and submitting an LRR claim as part of your company’s corporation tax return.
• Reviewing past expenditure and submitting appropriate retrospective claims.

By way of illustration, our team recently supported a client, over a five-year period, in making LRR claims of £8.4 million (average of £1.7 million a year). Using the payable tax credit, our client also generated cashback from HMRC of £1.3 million over this period (average of £268,000 a year). This relief made their projects not only viable but highly profitable.

If you are exploring Land Remediation Relief, get in touch with our real estate and tax experts.