Now don't go to sleep, because for many involved in development – whether residential or commercial property – this is a valuable opportunity to reduce what they have to pay to those nice people at HMRC.
Here’s a short piece from Kreston Reeves’ latest Property Reach newsletter, which they kindly sent Kentcentric, explaining Land Remediation Relief (LRR):
We’ve noticed a recent trend whereby companies are missing out on claiming legitimate tax relief because the reliefs are either little known, or complicated, or both! There has been much in the media over the last few years about the morality of tax planning, but failing to take advantage of tax reliefs in place to encourage expenditure for good public policy reasons cannot be part of this.
Claiming relief for LRR is one such example, in this article, Paul Roe, partner in our Gatwick office outlines what to look out for to claim LRR and what the benefits of a claim may be.
If ever there were a question about tax reliefs on the popular TV show Pointless, I suspect LRR would indeed be a “pointless” answer, but it is far from being that. Provided they qualify, and give HMRC the right evidence, companies (only) can claim an enhancement of 150% on certain expenditure which puts land back into use, or makes buildings fit for use again.
So what counts as remediation to qualify for LRR?
- Land or buildings are contaminated if they contain anything, or are in such condition as would cause relevant harm such as death, significant injury or damage to living things, human or animal. It may not be immediately obvious from this definition, but clearing asbestos from buildings certainly falls within this definition, and is probably the one most often missed.
- Bringing derelict land back into productive use (other than simply by removing buildings or structures).
- Clearing contamination from land, (polluted water, arsenic, arsenical compounds, radon or Japanese Knotweed).
- All of which had been caused by a previous owner.
Companies, which have acquired land or buildings outright, or on a lease longer than seven years, for the purposes of its trade, may make a claim, but LRR will be blocked to the company which had originally caused the contamination.
So, you’ve acquired the right title in the land, and it is contaminated in some form that fits the definition above (and you’ve not been Land Remediation Relief 5 responsible for the contamination!) what expenditure qualifies for the enhanced tax relief?
As you would expect, this is defined too:
- Capital or revenue expenditure qualifies, provided it is recognisable as having been incurred as having the effect of preventing, minimising, remedying, containing or even only mitigating the effects of the relevant harm. So, as is often overlooked here, the remediation need not entirely solve any issue for the expenditure to qualify.
- The costs must have been incurred because of the contamination or dereliction and for no other reason.
- Materials, sub contractor costs and own company wages costs associated with the work can be included in a claim.
The costs of making a claim for LRR exceed those for other tax reliefs, since it is vital that relevant experts are involved in the process. Indeed, we recommend that a detailed assessment is undertaken by such an expert, to include a specification of works required. This is not like claiming for Research and Development where a more or less standard format report is needed for HMRC; to be successful in an LRR claim, a detailed bundle of evidence highly specific to that claim is required, and often some liaison is required with HMRC - who are not experts in the field.
Once you’ve ticked all the qualification boxes, there are two methods in which relief could be taken:
- As noted above, you can claim 150% of the qualifying expenditure, in effect gaining 30% tax saved on the amount spent, or,
- If you’re in loss that year, you can swap the enhanced loss relief carried forward for a reduced amount of cash payment from HMRC, (spend x 150% x 16%). As this equates to 24% of the spend, there will be a decision to make, trading off lower cash sooner for greater relief against future profits.
The Kentcentric team hope that helps, if you need any further information or explanation we suggest you contact Kreston Reeves and speak to Jennifer Williamson or Andrew Griggs on 0330 124 1399.