Claims for relief

Land Remediation Relief (LRR) is a corporation tax relief that helps cover the extra costs of cleaning up contaminated land and buildings.  It’s available to corporate property owners, real estate investment trusts, housebuilders, and other commercial developers.   Here’s what you can expect:

1. Property Owners and Occupiers: Get up to 37.5% (150% x 25%) of the qualifying costs back.
2. Developers and Housebuilders: Receive up to 12.5%(50% x 25%)of the qualifying costs.
3. Loss-Making Companies: Can claim a cash tax credit of up to 24% (150% x 16%).

These percentages are based on the current main rate of corporation tax.

Important Points

• The property owner and Occupier – Selling Property: If you sell a property, you must exclude 100% of the LRR-qualifying expenditure from any capital gains calculation.  Only the extra 50% can be considered.
• Loss-Making Companies: The 16% credit is based on the unrelieved trading loss for that period.  The tax credit won’t be paid if there are unpaid PAYE or national insurance contributions.

Things to Watch Out For

• Fee Arrangements: Be cautious of fee arrangements that ignore the underlying tax deduction a company might already receive or don’t reflect the business’s commercial reality.  Claims for tax credits need a complete picture of the claimant’s tax position and proper tax cash-flow forecasting.
• Accounting Treatment: The timing of when you can claim LRR depends on the accounting treatment of the costs.  If costs are held in work in progress, you might have to wait a year or more to claim.

Subsidised Expenditure

• No Subsidies Allowed: The expenditure cannot be subsidised by grants or other third-party payments.
• Housebuilders: If you buy a contaminated site and bear the risk of cleanup, you should retain the benefit of any LRR claim.  However, if you acquire a site below market value or negotiate payments against contamination works, your LRR claim might be restricted or rejected.
• Building Contractors: If you receive a payment from a client, you likely can’t claim LRR because the expenditure is met by a third party, and you most likely do not hold a major interest in the land.

Reversionary Interests and Tenants

• A key part of the Land Remediation Relief (LRR) rules is the ‘polluter pays’ principle.  This means that if a company (or someone connected to it) is responsible for the contamination, they can’t claim LRR.  It doesn’t matter if the pollution was intentional or accidental.  If you didn’t act to prevent or reduce the pollution, you’re considered complicit.
• HMRC’s advice to landlords is clear: “A landlord cannot claim Land Remediation Relief for cleaning up contamination caused by one of their tenants.”

There are also rules to prevent LRR claims if the polluter still has an interest in the property, such as in leaseback deals.  Claims for sites with polluting tenants or where the polluter retains an interest will usually be restricted.

Industrial Activity

For LRR purposes, land is considered contaminated if, due to ‘industrial activity’, there is:

• Contamination causing ‘relevant harm’, or
• A serious possibility that the contamination will cause ‘relevant harm’.

Contamination from living organisms, decaying matter, air, or water is generally excluded, except for arsenic, radon, and Japanese knotweed.

Costs in Brownfield Regeneration

Not all costs in brownfield regeneration qualify for LRR. For example:

• costs for stabilising former mine shafts
• dealing with non-industrial contamination (like domestic litter or vermin) are often excluded.
• Reinforced autoclaved aerated concrete (RAAC) is also not classified as a contaminant with the same potential to cause relevant harm.

LRR claims need to be evidence-based, linking the contamination to industrial activity and the concept of relevant harm or serious possibility.  Costs incurred for multiple purposes are unlikely to qualify.

Derelict Land or Buildings

The rules for long-term derelict land were tightened in 2009, requiring the site to have been vacant since 1 April 1998.  This means the site must have been vacant for 26 years or more.  The type of qualifying expenditure is also narrow, making this provision almost obsolete.

Some thoughts

A spring 2025 consultation is being held on the impact/effectiveness of LRR and it will be interesting to see what reforms may be brought in.

LRR offers a great opportunity but it is not a straight forward relief.  Taxpayers require more advance certainty/easier to understand guidance.

It would be beneficial for HMRC to consider report templates that are standardised, faster payments for work in progress and perhaps a review on the rate of relief.

Aside from the tax, ambitious targets have been set for house building.  LRR could be a key player in getting developers to take on sites that require remediation if it had some tweaks!.