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Land Remediation Relief is relief on corporation tax available
to companies that buy and develop contaminated or derelict land.
The relief, introduced in 2001, was expected to be discontinued in
2012. However, the Government has announced that the relief will
now continue to be available.
The Relief
A company subject to UK corporation tax may claim relief on
profits equal to 150% (50% for property companies) of
"qualifying expenditure" on cleaning up land that it
purchased in a "contaminated or derelict state".
Qualifying expenditure is capital or revenue spent on establishing
the extent of, and carrying out the clean up of, contamination or
dereliction: relief on capital expenditure must be claimed in the
same year as expenditure. Relief on revenue may be claimed in the
year it becomes a deduction for tax purposes.
If remediation is carried out by the company itself, the relief
is only available on the cost of materials and employees
specifically engaged in the remediation itself.
There is no relief if the remediation work is not carried out or
if, on acquiring the land, a buyer was aware of land contamination
and has since had the power to remedy it but failed to do so.
Relief is also unavailable in certain situations where remediation
is required by law.
Land in a Contaminated or Derelict State
Land is classified as being in a contaminated state if, as a
result of industrial activity, it may cause death or harm to living
organisms, either directly or by way of water pollution or through
the ecosystem, and where it damages buildings having a real impact
on the use of the building. Examples of this include Japanese
knotweed, arsenic and arsenic compounds, and radon.
Land is taken to be in a derelict state if it is out of
productive use and incapable of being brought back into productive
use without the removal of buildings or structures. The land
must have been derelict since the earliest of either the
acquisition of the land or 1 April 1998.
HMRC upholds the principle that the 'polluter pays'.
Land must have been in its contaminated or derelict state when the
company claiming the relief purchased it, though Japanese knotweed
is an exception to this rule. Equally, where a developer enters an
arrangement where the seller gains from the development and the
seller was responsible for the contamination, the developer cannot
claim the relief.
Conclusion
Land Remediation Relief, when it can be attained, may make
development of contaminated land a viable or even attractive
option. It is important to note, though, that capital relief
must be elected within two years of the end of the accounting
period in which it was expended, though election for relief on
revenue expenditure is less restricted.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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