What counts as contamination?
Land that is in a ‘contaminated state’ is “relevant harm” is being caused- or there’s a serious possibility that relevant harm will be caused. – Corporation Tax Act, 2009
Relevant harm, in this context, could mean the death or injury of people or animals. However, it could also mean significant pollution of controlled waters, an adverse impact on the ecosystem, or structural damage to buildings. But, to qualify, the contamination must usually be a result of industrial activity. This could include mining, manufacturing, construction, and energy or water supplies.
Qualifying expenditure includes the cost of establishing how much contamination there is. Plus, removing or containing it so it’s no longer harmful, and the costs of staff, materials, and subcontractors carrying out the remediation work.
How do I know if I qualify?
In order to quality, you must meet the conditions outlining ‘contamination’ above. But, there are also a number of other conditions your property must meet, to qualify for relief and exclusions for certain circumstances.
However, please note that it’s important to check with an expert before making a claim. Ensuring that your property comes under the rules outlined.
Do I qualify?
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You can only qualify for the relief if:
You’re decontaminating land in the UK.
This has to be land that your company owns or has a ‘major interest’ in.
The cost wouldn’t have been incurred anyway.
You won’t qualify if you would have spent the money restoring the land if it wasn’t contaminated.
It was acquired in a derelict or contaminated state.
A ‘polluter pays’ policy applies to this tax relief, so you can only claim if the land was contaminated when you acquired it from a third party. One specific exception to this is the presence of Japanese knotweed, which can be spread by fly-tipping.
You acquired it for the purposes of your trade or business.
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Exclusions from the relief include:
Subsidised expenditure.
Companies are ineligible for land remediation tax relief if the contamination is caused by the company, if they do not have a “major interest” in the land if expenses were subsidised through grants, or if the acquisition cost was discounted for remediation costs.
Discounted acquisitions.
Discounted acquisitions are excluded from the UK’s land remediation tax relief as the relief is intended to incentivise the clean-up of contaminated land rather than to reward companies for purchasing contaminated land at a discount.
Expenditure on landfill tax.
Expenditure on landfill tax is excluded from the land remediation tax relief as it is considered a form of waste disposal rather than a remediation activity.
That sounds like I could claim - how much can I claim?
The amount you can claim depends on how you hold the asset.
As an investor or owner/occupier
If you are holding the land or property as an asset, you’ll be able to claim a 100% deduction on your expenditure from decontaminating the site, plus an additional 50%.
As a Property developer
If you are a property developer, you are not eligible for that full amount, but can still claim at a rate of 50%.
And if your company is making a loss on the project, don’t despair – there’s relief for you, too. Loss-making companies can claim a tax credit instead, which currently stands at 16%.
There are other conditions to be aware of
In cases where the property is considered an asset, such as a retail portfolio, claiming the full 150% is necessary for the year the expenses were incurred. This equates to a 28.5% savings (assuming a 19% corporation tax) on all LRR-related expenditures in terms of cash.
For property that is traded, such as by developers, a 50% benefit is obtained as all construction expenses (100%) are written off to the profit and loss account, allowing for the excess over 50% to be claimed. The excess over 50% LRR can only be claimed when the property is disposed of. This results in a 9.5% savings (assuming 19% corporation tax) on all LRR-related expenditures in terms of cash.
Brilliant! When do I get the relief?
The timing of your relief will depend on whether you’re claiming revenue or capital expenditure.
Revenue expenditure.
Relief is given in the accounting year that the expenditure is recognised and deducted in calculating annual profit – for instance, when work is completed and the property is sold.
Capital expenditure.
Relief is given in the accounting year that the qualifying Land Remediation spend was incurred.
Both types of expenditure.
Accounting rules state that tax returns may be amended up to 2 years after the accounting year end in question. In other words, the reliefs can be applied to an “open tax return”.
For more information on claiming land remediation tax relief, get in touch
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