Article / 18 Aug 2023

How much land remediation relief are you eligible to claim?

Insight shared by:

Gateley Capitus

Land remediation relief is UK tax relief that benefits companies that clean up land or property that they bought from someone else. In this insight we provide guidance on the potential value of land remediation relief, how to claim it and who is eligible to claim.

Who is eligible to make a land remediation relief claim?

Land remediation relief (LRR), also sometimes called ‘contaminated land relief’, benefits companies that clean up land or property that they bought from someone else. It is available to developers, housebuilders, investors and owner-occupiers.

When can a LRR claim be made?

When the benefit can be claimed and whether a backdated claim can be made, depends on whether a company’s spend is ‘capital’ (investment) or ‘revenue’ (trading).

For ‘capital’ spend by landlords and occupiers, the relief is claimed in the year the money is spent and claims must be made within two years of the end of that accounting year.

Whereas relief for ‘revenue’ spend by developers and housebuilders is claimed when the land or property is sold. Claims may be made up to four years from the end of that accounting year.

LRR for revenue expenditure

Developers and housebuilders can write-off their development cost for tax as a normal business outgoing. But claiming LRR lowers their taxable profits by a further half of the qualifying remediation cost. The extra tax saving is 12.5p for every pound of qualifying spend.

LRR for capital expenditure

A property investor or owner-occupier normally cannot get a tax deduction for ‘capital’ clean-up costs. But claiming LRR means they can elect to treat qualifying spend as a revenue expense for tax purposes. This means they can deduct the cost from their taxable profits. This gives an extra 150% relief so makes the relief three times more valuable than it is for property traders. The tax saving is 37.5p for each pound of qualifying spend.

How do you calculate LRR allowance?

To qualify for tax relief, the money must be spent on cleaning-up the land or property. The overriding question that needs to be asked is whether the company would have spent the money if the land or property had not been contaminated?

Common examples of qualifying contamination and steps to deal with this include:

  • Asbestos (e.g. roofing panels) – removal or covering up 
  • Sulphates in soil and concrete
  • Hydrocarbons e.g. fuels and oils or dealing with disused tanks
  • Heavy metal contaminants from industrial processes
  • Ground or landfill gases – protection measures such as membranes or ventilation systems in buildings or foundations
  • Japanese Knotweed – on-site treatment
  • Radon protection measures
  • Arsenic 

How does LRR affect tax?

Once the qualifying clean-up spend is identified, this amount is multiplied by 1.5 to calculate the increased amount that can be written-off for tax. Claims for the scheme are made in a company’s usual corporation tax return.

Example for revenue spend (property trader or housebuilder)

Qualifying spend: £100,000 
Total land remediation relief tax deduction: £150,000 (£100,000 x 1.5)
Additional tax deduction: £50,000 (50% extra) 
Additional tax saving at 25%: £12,500 

This lowers the company’s tax bill by the additional tax saving.

Example for capital spend (property investor or owner occupier)

Qualifying spend amount identified: £100,000
Total land remediation relief deduction: £150,000 (£100,000 x 1.5)
Additional tax deduction: £150,000 (150% extra as elected revenue cost) 
Additional tax saving at 25%: £37,500 

This lowers the company’s taxable bill by the additional tax saving.

How can Gateley Capitus help?

 

It is not straightforward to ensure the required conditions are met and draw the line between qualifying and non-qualifying expenditure. Specialist advice pays for itself many times over.

 

Our team of land remediation relief specialists are experts in surveying and tax with experience interpreting environmental and remediation reports and examining spending to maximise the cost of qualifying relief. We can even undertake a retrospective review of your projects and potentially find significant tax savings that were previously overlooked.