A Guide to Claiming Land Remediation Relief in the UK

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 28.5% 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 9.5% 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 land remediation tax relief can improve the viability of schemes and your cash flow and profitability. Land Remediation Relief 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.  And because of recent tax law changes, company landlords that are not resident in the UK are now able to claim LRR for the first time. 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.
Whereas relief for revenue expenditure is claimed when the land or property is sold. 

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 house builders, property developers, property investors and owner occupiers.