Tax relief for cleaning up contaminated or derelict land

Extra tax relief is available where expenditure is incurred by trading companies on land which is long term derelict or contaminated and where the land is then brought back into use.  This relief was introduced by the government to encourage development of brownfield sites rather than greenfield sites.

For example, a property developer may have acquired a site in need of remediation work or a manufacturer may be thinking of expanding onto a site in need of remediation.  The company will probably already receive tax relief on the remediation costs but extra tax relief is available as follows:

• 150% tax relief on qualifying remediation costs.  For example, costs of £500k that are already tax deductible can give rise to an extra tax deduction of £250k – which, for a company paying corporation tax at 20% tax is worth an extra £50k in tax savings in addition to the tax relief normally available on the same costs.
• Or, if a company is loss making, the loss can be surrendered to HMRC in exchange for a 16% cash repayment from HMRC.  See below for further details.

What is Contamination?

Contamination needs to be already present when the land is acquired and needs to be as a result of industrial activity.  Contamination includes the presence of things like asbestos and Japanese knotweed.  The contamination should be causing or be capable of causing relevant harm or there is a serious possibility of it causing significant pollution.

What is classed as long term dereliction?

Long term means being derelict for 10 years, or listed on the English National Land Use database since 1 April 1998.  It is deemed in a derelict state if the land is not in a productive state and cannot be put to economic or social use, and it can only be put into productive use by removing buildings or structures.

What are qualifying costs?

Qualifying costs are those that are only incurred directly on improving the state of the land, including preparatory activities, staffing costs, materials and subcontractors’ costs and asbestos removal providing that they directly relate to the remediation. Excluded expenditure includes preliminaries, costs met by third parties and work carried out under a statutory obligation imposed by legislation.

Deadlines

Retrospective claims can be made within two years from the end of accounting period during which the expenditure was incurred.  So, a company with an accounting date of 31 March 2015 can claim relief on expenditure incurred after 1 April 2012.

Who qualifies?

Most companies can claim.  However, there are a number of rules about who qualifies for the relief. An important exclusion is that the person who contaminated the land or anyone connected with them cannot make a claim. Hopefully, you can see from the above that these rules give very generous extra tax relief to companies incurring land remediation costs.  In our experience, this relief is often overlooked so anyone who has cleared, or is considering clearing up, contaminated or derelict land should seek proper tax advice.