Land Remediation Relief is relief on corporation tax available to companies that buy and develop contaminated or derelict land. The relief, introduced in 2001, was expected to be discontinued in 2012. However, the Government has announced that the relief will now continue to be available.
A company subject to UK corporation tax may claim relief on profits equal to 150% (50% for property companies) of “qualifying expenditure” on cleaning up land that it purchased in a “contaminated or derelict state”. Qualifying expenditure is capital or revenue spent on establishing the extent of, and carrying out the clean up of, contamination or dereliction: relief on capital expenditure must be claimed in the same year as expenditure. Relief on revenue may be claimed in the year it becomes a deduction for tax purposes.
If remediation is carried out by the company itself, the relief is only available on the cost of materials and employees specifically engaged in the remediation itself.
There is no relief if the remediation work is not carried out or if, on acquiring the land, a buyer was aware of land contamination and has since had the power to remedy it but failed to do so. Relief is also unavailable in certain situations where remediation is required by law.
Land in a Contaminated or Derelict State
Land is classified as being in a contaminated state if, as a result of industrial activity, it may cause death or harm to living organisms, either directly or by way of water pollution or through the ecosystem, and where it damages buildings having a real impact on the use of the building. Examples of this include Japanese knotweed, arsenic and arsenic compounds, and radon.
Land is taken to be in a derelict state if it is out of productive use and incapable of being brought back into productive use without the removal of buildings or structures. The land must have been derelict since the earliest of either the acquisition of the land or 1 April 1998.
HMRC upholds the principle that the ‘polluter pays’. Land must have been in its contaminated or derelict state when the company claiming the relief purchased it, though Japanese knotweed is an exception to this rule. Equally, where a developer enters an arrangement where the seller gains from the development and the seller was responsible for the contamination, the developer cannot claim the relief.
Land Remediation Relief, when it can be attained, may make development of contaminated land a viable or even attractive option. It is important to note, though, that capital relief must be elected within two years of the end of the accounting period in which it was expended, though election for relief on revenue expenditure is less restricted.