Land remediation tax relief

Land Remediation Tax Relief (LRTR) was introduced by S.70 Finance Act 2001 and facilitates an enhanced deduction of up to 150% for companies against their “qualifying land remediation expenditure” (QLRE) incurred on or after 11 May 2001. Relief is generally not available in respect to individuals or partnerships.

Despite the, then, Inland Revenue’s Budget press release (REV BN22) stating that “an enhanced deduction of 150% for all companies” the true rate of relief is varied depending upon the nature of the tax payer. As with all tax relief, there are a variety of conditions that must be met to secure one’s entitlement to LRTR. However, given that relief at up to 150% is available, there is a clear fiscal incentive to consider the opportunity for LRTR and wherever possible to optimise the claim whether on commercial or residential property schemes.

Investors and / or owner occupiers

Here the expenditure is in respect of a fixed capital asset of a trade or Schedule A business then 150% relief is available, subject to the specific circumstances and making an election for a capital deduction. This effectively means that every £100,000 spent is treated as if the cost had been £150,000.

Property traders

For developer traders the case is somewhat different, due to the pre-existing ability to treat the base expenditure as a deduction in their profit and loss account. Thus for developers Land Remediation Relief is in effect limited to the enhanced 50% proportion only, thereby giving a total net benefit equivalent to 15% of the cost of the remediation (assuming 30% tax rate).

As the legislation is rather new, there is currently no precedent case law to assist in establishing the boundaries of what is generally considered to be very widely drafted legislation; far wider than the pre-existing definitions set out within the Environmental legislation.

Consequently there are many aspects of LRTR that are still subject to debate and interpretation; yielding opportunities for tax payers taking specialist advice to increase their claims by careful reference to the site conditions, environmental audit and close examination of the remediation works and costs.

Our team has undertaken many LRTR claims for a wide variety of clients and situations and can often add value over and above those prepared by project surveyors, environmental consultants or lawyers who generally, in our experience, take a more narrowly defined environmental perspective in assessing the nature of the contamination and necessary remediation.