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The underclaimed tax relief to consider as part of new investment in brownfield sites

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The Government’s decision to subsidise the development of 1,500 hectares of brownfield land for the creation of 160,000 new homes provides developers with increased motivation to examine the opportunities available in undertaking  projects of this nature. Along with the grant funding available on application, the existence of land remediation relief, which is based on 150 per cent of qualifying expenditure and in turn allows developers to further maximise their profits, is an option they should most definitely keep in mind.

Development Plans

The Government has announced plans to invest £1.8bn in the development of brownfield sites to help improve local areas and assist those looking to get onto the property ladder. The aforementioned sum available for the redevelopment project will consist of locally led grant funding, distributed to local authorities and a proportion earmarked for transport links, community facilities and underused land, such as brownfield sites. Developers will in all likelihood be able to utilise land remediation relief and reduce their taxable profits as many brownfield sites are likely to be contaminated.

Land remediation relief

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Land remediation relief provides corporation tax relief at the rate of 150 per cent of qualifying costs incurred by developers on such projects. Companies are also given the option, if they are loss making, to instead surrender their losses to HMRC and receive a repayable tax credit at the rate of 16 per cent of their surrendered loss. This is similar to how the R&D tax relief regime operates.

Qualifying costs for land remediation relief include costs incurred in examining the level of contamination at a site along with the costs involved in establishing measures and procedures to manage contamination. The overall aim is to reduce the potential harm it can cause to both people and the environment to an acceptable level. Furthermore, costs relating to materials purchased for the project and in employing staff or subcontractors can also be claimed.

Exclusions

Developers must be mindful of the fact that land remediation relief cannot be claimed in certain situation. An example of such a scenario is where the business has already received a government grant awarded for the same intention, being made available to be utilised in decontaminating a brownfield site. In circumstances where costs incurred in regards to the above exceed the value of the grant provided, developers are able to make a claim against these additional amounts.

Allocation of costs

Where it is difficult to accurately ascertain how the grant funding received will be allocated against the costs incurred relating to either decontamination work or to overall development work, HMRC instructs developers to allocate costs in “a just and reasonable manner”. Given that the advice from HMRC is more of a guideline and thus open to interpretation, it is essential for developers to maintain accurate records and be capable of clearly demonstrating how qualifying expenditure has been allocated.

What is qualifying contamination?

Before taking on any land remediation projects, developers need to identify the nature of the contamination and if this meets the criteria per HMRC’s definition which will determine whether it will quality for Land Remediation Relief. In order to qualify for land remediation relief,

  • Contamination must be causing harm to people or wildlife or have the potential to do so in the future.
  • Alternatively, there must be a serious possibility of environmental pollution.

Developers can only make a claim for land remediation relief if the affected land has been contaminated due to industrial activity. In general, to be recognised as contamination, the contaminant must be man-made, such as asbestos, and not naturally occurring. However, there are some exceptions to this rule, such as the presence of Japanese knotweed, or naturally occurring arsenic or radon. In addition, the relief cannot be claimed if the claimant is responsible for the contamination occurring or the presence of contaminants. The land remediation relief available may be reduced if the purchase price of the land was reduced as a result of contamination.

The importance of advice

Developer should consider seeking expert advice at an early stage of remediation projects. It is also vital that developers maintain detailed records of all costs incurred throughout the project and ensuring that costs related to employing subcontractors in particular are as detailed as possible. Following these steps will boost their chances of making a successful claim for land remediation relief.

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Developers must ensure that they have a solid grasp of the relevant criteria and facts that dictate whether land remediation relief can be claimed and should seek expert advice if need be. While the opportunities presented to developers due to the Government’s decision to invest in the development of brownfield sites are potentially significant, it is equally important that they optimise tax savings and efficiently utilise the tax relief available.

For more information on tax relief as part of new investment in brownfield sites, contact Natasha Spicer.

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Posted in Blog, Property & construction