A guide to claiming land remediation relief in the UK

In this guide we provide an overview of what land remediation relief is, how it works and who can benefit from this generous tax relief.

What is land remediation relief?

Introduced in 2001, and changed in 2009, land remediation relief (LRR) is still one of the most generous tax reliefs for property developers and investors. It gives a tax deduction of up to one and a half times the money spent on cleaning up brownfield sites and buildings.

The relief is claimed in a company’s tax return. The actual cash value depends on how the spend is treated in the company’s accounts:

• Capital spend (i.e. investment expenditure by a landlord or occupier) lowers the tax bill of a profitable company by 37.5% of the qualifying spend;
• Revenue spend (i.e. trading expenditure by a property developer or dealer) lowers the tax bill of a profitable company by an extra 12.5% of the money spent;
• Loss-making companies can give up the future use of losses to reduce tax bills in return for a cash payment from HM Revenue. This is called a “tax credit” and is 24% of the qualifying spend.

If you, or your clients, have developed used sites or older commercial property assets, then LRR can improve the viability of schemes and your cash flow and profitability. LRR can be claimed on past developments and add value to future projects.

For developers this is currently the only corporation tax incentive available for property expenditure. Company landlords that are not resident in the UK are also able to claim LRR, so it should not be overlooked.

How does land remediation relief work?

Like any tax relief there are conditions that must be met for a company to claim LRR. The land must be in the UK and all claimants must:

• be subject to UK corporation tax
• have bought the freehold or a leasehold with seven or more years remaining
• not be the polluter or be connected to the polluter
• deduct the amount of any subsidy or grant received from any claim.

An overriding question is whether the company would have spent the money if the land or property had not been contaminated?

Timing

The timing of the benefit and the ability to make backdated claims depends on whether the spend is capital or revenue. Claims must be made, and the relief is given, as follows:

• Capital spend: the relief is given in the accounting year the money is spent. It must be claimed within two years from the end of that accounting year.
• Revenue spend: the relief is given in the accounting year when the land or property is sold. It must be claimed up to four years from the end of that accounting year.

Types of clients

Companies who can benefit from LRR include housebuilders, property developers, property investors and owner occupiers.