Land Remediation Relief - Amy O'Gorman

Land Remediation Relief Caution! May contain contamination – a sweetener for developers

www.howardkennedy.com

The struggle for the house building industry to meet the existing housing demand is welldocumented. Whilst there are many factors which contribute to this situation, land affected by contamination is certainly something that arises more frequently as the redevelopment of brown-field land is an area where both the planning policy and the technology of remediation are developing.

In order to try and address this, The Government introduced a scheme of land remediation relief to encourage the redevelopment of land affected by contamination, which was later extended to include derelict sites. The relief allows companies (but not individuals) to claim a deduction in corporation tax for revenue and capital expenditure incurred in remediating certain contaminated or derelict sites.

This works as follows. For every £1 of qualifying expenditure incurred by a company (whether income or capital) on land remediation, the company can claim a deduction of £1.50 against its profits when calculating its corporation tax liability. In addition, trading companies that are not making profit (and so are not paying corporation tax) can surrender losses generated by land remediation relief and claim a tax credit (16% of the amount surrendered). For companies that have difficulties with cash flow, an immediate cash payment may be of more use than a future saving in corporation tax when the company starts to make a profit.

For example, suppose a company with normal trading profits of £10,000 incurs £50,000 of capital expenditure on land remediation. The company is entitled to claim a deduction of £75,000 in relation to its expenditure, turning the £10,000 profit into £65,000 loss. As it has land remediation losses, the company may elect to claim a tax credit (paid by HMRC) of up to £10,400 (£65,000 x 16%) instead. Alternatively, the company may claim a lower tax credit (or nothing), in which case the unsurrendered land remediation losses can be carried forward against profits of future years.

www.howardkennedy.com If you would like more information on our services, please visit www.howardkennedy.com here you will find all our latest news, publications and events. This material is for general information only and is not intended to provide legal advice. © Howard Kennedy LLP 2016

The requirements for claiming the relief are as follows: • The land is situated in the UK and has been acquired by the company for the purposes of a UK property business or trade carried on by it.

• At the time of acquisition all or part of the land is or was in a contaminated state. Land is in a contaminated state if it is in such a condition, because of substances in, on or under the land, that harm is being caused or there is a possibility of harm being caused, or pollution of controlled waters is being, or is likely to be, caused1.

• The company incurs qualifying land remediation expenditure in respect of the land. Qualifying expenditure means expenditure on land all or part of which is in a contaminated state and which would not have been incurred if the land had not been in a contaminated state. It is expenditure on relevant land remediation undertaken by the company itself or on its behalf.

There is a further condition that the company's expenditure is not treated as subsidised to the extent that a grant or subsidy is obtained in respect of the expenditure, or it is otherwise met directly or indirectly by a person other than the company.

The relevant land remediation comprises the doing of any works, the carrying out of any operations or the taking of any steps in relation to the land in question, any controlled waters affected by that land or any land adjoining or adjacent to that land. The purpose of the activities must be to prevent or minimise, or remedy or mitigate the effects of any harm or any pollution of controlled waters, by virtue of which, the land is in a contaminated state, or to restore land or waters to their former state.

_____________________ 1 Since

01 April 2009 the relief was extended to cover expenditure on remediating land affected by Japanese knotweed, radon and naturally occurring arsenic or arsenical compounds, as these can act as a significant deterrent to re-developing sites.

Land remediation relief is also available for the remediation of derelict land, which for these purposes is land which is not in productive use; incapable of being brought back into productive use, unless buildings or structures on it are removed; derelict throughout the period beginning with the earlier of 01 April 1998 or the date of acquisition of a major interest in the land by the claimant company (or connected party). The relief is given for specific expenditure incurred in removing certain structures inhibiting redevelopment, for example, building foundations and belowground redundant services.

www.howardkennedy.com

If you would like more information on our services, please visit www.howardkennedy.com here you will find all our latest news, publications and events. This material is for general information only and is not intended to provide legal advice. © Howard Kennedy LLP 2016

As you would expect, there is no entitlement to relief in respect of expenditure on land which is in a contaminated state wholly or partly as a result of any thing done, or omitted to be done, at any time by the company claiming the relief. Importantly, it is also excluded if a person with a connection to the company is so responsible. In addition, if a land owner is already under a legal obligation under certain legislation to undertake remediation work (for example expenditure is incurred as a result of being served with a notice under certain specified legislation), it is not entitled to relief.

Developer / investor clients should consider whether they have incurred any expenditure in removing contaminants from land in the previous 6 years and which were present at the time of purchase. A company must elect, within two years of the end of the accounting period in which the expenditure is incurred, to treat qualifying capital expenditure as a deduction in computing their taxable profits. The additional deduction (50% of the qualifying expenditure) can be claimed at any time within 6 years of the end of the accounting period in which the qualifying expenditure is incurred.

Contact:

Amy O’Gorman Associate: Real Estate T: +44 (0) 20 3755 5637 E: amy.o’gorman@howardkennedy.com

www.howardkennedy.com

If you would like more information on our services, please visit www.howardkennedy.com here you will find all our latest news, publications and events. This material is for general information only and is not intended to provide legal advice. Š Howard Kennedy LLP 2016