In 2001, the UK’s government launched the Land Remediation Relief (LRR), as part of the nation’s urban regeneration agenda, to encourage the redevelopment of brownfield sites, which were recognised as having immense developmental potential.
Brownfield land is the result of historic industrialism, which was formerly unregulated and conducted with minimal care for the environment. Over time, the impact of this led to heavy pollution of native lands and waterways, posing a significant risk to a range of environmental receptors.
The LRR scheme was introduced as an incentivised measure, to bring this land back into productive use whilst cost-effectively addressing the lack of acreage required to fulfil affordable housing targets. Initially, the relief was restricted to expenditures associated with remediating contaminated land, however, in 2009 it was extended to include long-term derelict properties.
For tax purposes, long-term derelict assets comprise buildings or plots of land, that have been out of productive use over an enduring period, and thus require remedial action, before being brought back into productive use. To qualify the property must have remained derelict prior to acquisition, or earlier than 1 April 1998. Relevant dereliction remediation constitutes the removal of:
On the other hand, an asset is said to be contaminated due to the presence of a substance which is causing, or likely to cause, relevant harm to living organisms, or contribute significant pollution to watercourses. Relevant harm constitutes any adversities imposed on humans and animals as a result of hazardous substances. These can include industrial leachates, such as petrochemicals, metalloids and asbestos or naturally occurring contaminants, including contaminants such as Japanese Knotweed, radon and arsenic.
The scheme is available to UK corporation taxpaying entities only, with the potential to provide an enhanced deduction in corporation tax, of up to 150%. This can be realised by offsetting qualifying land remediation expenditure, against taxable profits or by surrendering the losses in return for a land remediation tax credit.
The cash value of the relief depends on the type of expenditure. For revenue expenditure, this can be a total of 9.5% of their qualifying costs, while for capital expenditure, recovery can be up to 28.5%.
Who is eligible?
To benefit from this relief, the claimant must not be the polluter or have any associations with the polluter. Developers and property investors incur revenue expenditure, which entitles them to claim their base costs as an allowable business expense, as such the relief is only offered at 50% of qualifying remediation expenditure. On the other hand, owners and occupiers bear capital expenditure and are therefore entitled to 150% relief.
Although the relief is not available to individuals or partnerships, an entity that is a part of a partnership can claim its respective share of the expenditure, providing it effectively satisfies other conditions stipulated in the legislation, including:
Nevertheless, this lucrative benefit is often overlooked by smaller property developers and investors; or qualifying expenditure is likely to be miscalculated due to the uncertainty surrounding eligibility conditions as set out in the legislation. At Bonham & Brook, we have the experties to identify the relevant area and maximise your benefit.