Much has been written about Land Remediation Relief (LRR) and the closely related Derelict Land Relief (DLR). In a nutshell these can provide land owners and property developers relief for up to 150% of qualifying costs of “cleaning up” contaminated land – eg, spend £500,000 and get tax relief against a deemed spend of £750,000. It’s very appealing.
But as they say, all that glitters is not gold and there are a few significant hurdles to get over.
Firstly, the claimant has to own the land. We all know that many deals are done on the back of “options” – where the developer who has invested years (and funds) bringing a scheme together never actually takes ownership of the land. Does this therefore bar him or her from benefiting from this generous tax relief?
Secondly, the landowner must clearly identify the remediation costs. In its most basic form this would mean writing out a cheque for the clean-up, but things don’t always work in this way. The scarcity of development funding has increased the use of barter transactions which allow clean-up operations to be funded by non-cash means, for example, the extraction of minerals or topsoil from the site, or removal of metal structures for scrap value to name just two possibilities.
These make the reliefs seemingly impossible to obtain in certain situations. However, a good understanding of the mechanics of LRR and DLR can help immensely. For example – when negotiating the sale of the option, which may involve the upside of a share of surplus profits sometime in the future, it would be invaluable to know what level of tax relief the building contractor would be entitled to when they remediate the land. Similarly, careful advance planning of barter transactions can ensure that clean-up costs are properly identifiable, thus enabling the land owner to make a claim for tax relief.
Finally, these reliefs are Corporation Tax specific, and available only to Limited Companies. What this does is add yet another ingredient to the already complicated answer to the question “What business structure should we use?”
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.
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