Are you entitled to land remediation relief?

Land remediation relief

Land remediation relief (LRR) has been around for over 20 years. The original idea was to encourage trading and property businesses to bring back into use land polluted by industry. In 2009 the scope of the relief was extended to include derelict land.

Derelict or polluted land

LRR is available to companies that remediate contaminated land or land anywhere in the UK that’s been derelict since 1 April 1998 or the date you acquired it, whichever is earlier. Derelict means land which you can’t put to productive use without first removing old buildings or structures. Land that includes old structures or that’s polluted will cost less to buy than pristine land but will require extra money to make it usable. However, the extra cost will be mitigated by LRR tax savings.

There’s no minimum or maximum size of plot. So, whether you’re thinking of building a big factory on a remote site or just a small store for your business on land adjacent to your premises LRR can apply.

Qualifying costs for derelict land

Primarily, the costs you incur in clearing away the following types of structure can qualify for LRR:

• foundations
• reinforced concrete basements
• specified redundant below-ground services (gas, water, electricity, drainage, sewerage and telecommunications).

Income relief for capital costs

Normally the cost of demolishing old structures in preparation for a new one counts as capital. Since 2017 a tax deduction (capital allowance) for such capital expenditure can be claimed without the requirement that the land is derelict or polluted but it takes over 30 years to obtain tax relief for the full cost. By contrast, making derelict or polluted land fit for use gets you tax relief in the financial period in which the cost is incurred. Plus there’s a bonus. LRR allows you a tax deduction equal to 150% of the expenditure you incur in making the land usable.

Example. Acom Ltd wants a nearby shelter to garage its small fleet of vans. It finds a suitable plot that hasn’t been used for nearly 20 years and on which there’s a structure that’s been unused for over 20 years. Acom goes ahead with the purchase. It spends £20,000 on clearing the site, but can claim a corporation tax deduction of £30,000.

Tax credit instead

If LRR results in a loss for your business meaning it can’t get relief for the loss in the financial period in which the relief is allowed, it can exchange (surrender) the loss and receive a repayable tax credit instead. The credit is worth up to 16% of the loss. For example, if in a financial period LRR is £150,000 and the company’s loss £100,000, the tax credit is £16,000.