Land remediation relief

The deduction can be claimed for expenditure which would normally be regarded as of a capital nature and so not qualifying for a corporation tax deduction. An election must be made 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 taxable profits.

The relief is called land remediation relief.

What is contaminated land?

Land is considered to be in a contaminated state if contamination is causing, or has the serious potential to cause, harm to living organisms, pollution to controlled waters, damage to the ecosystem or significant damage or interference with buildings.

The contamination must have arisen as a result of industrial activities, except in the case of Japanese knotweed, radon or arsenic, which may qualify for the relief even if it not present as a result of industrial activity.

What expenditure qualifies?

The relief is available for money spent with the purpose of preventing, minimising or limiting the effects of the contamination provided the money would not have been spent but for the contamination. Qualifying expenditure can also include preparatory work such as the carrying out of assessments of the land, but only if the works are actually carried out following that assessment.

The money spent can include costs on materials and on employing people to decontaminate the land, including sub-contractors. There are restrictions for connected sub-contractors.

Tax relief will not be available if expenditure is subsidised, either by a grant or by some other person contributing to the costs.

What land?

Companies can only claim the relief if they have the freehold interest in the land or a lease with at least seven years left to run.

The land must have been in a contaminated state when it was acquired by the company claiming relief and that company, or a person connected with it, must not have been responsible for causing the contamination. In relation to Japanese knotweed, relief is available if the knotweed spread to the site during the period since the company acquired the site, so long as that company did not plant the knotweed and had taken action to present it spreading further within a reasonable timescale.

Nuclear sites do not qualify for relief.

How is the relief given?

Those companies carrying on a trade with sufficient profits to cover the expenditure will receive a corporation tax deduction for 150% of the qualifying costs.

Companies not making profits can either carry the relief forward or exchange all or some of the resulting loss for a tax credit. The payable tax credit is currently worth 16% of the losses.

The relief is particularly attractive for landlords and occupiers who will get higher tax relief than usual on their capital expenditure and will see the benefit of the relief much sooner. This is because the relief is available in the year that the expense occurs rather than being added to the capital gains tax base cost of the property, which only provides relief when the property is sold.

The Office of Tax Simplification recommended the abolition of land remediation relief, but following a period of consultation the government announced in December 2011 that the relief would be retained.

Derelict land

Land remediation relief provides 150% corporation tax relief for companies in relation to certain works on sites which have been derelict since 1 April 1998. The relief is the same as for the remediation of contaminated land so that a tax credit worth 16% of the losses is available for loss making companies.

Land is derelict if it is not being used for an economic activity, including as a car park, and cannot be regenerated for economic enterprise without removing buildings or other structures on the land.

For relief to be available, the land must be in the UK and the company claiming relief must have purchased the land for the purpose of its trade or property letting business.

Relief only applies if the land was in a derelict state when the company purchased it, and it must have been in a derelict state continuously since 1 April 1998.

Companies that claim relief must show that they are not responsible for the state of dereliction and that no one connected with their business is responsible either.

Relief does not apply to works which a property owner is required by law to carry out.

Companies that spend money to bring a derelict site into commercial use will qualify for tax relief on expenditure on removing post tensioned concrete heavyweight construction, building foundations and machinery bases, reinforced concrete pilecaps and reinforced concrete basements.

Money spent on demolishing redundant services below ground can also qualify for tax relief.

Any fees that a company incurs directly relating to any of the removals or demolition works also qualify for relief.