The UK government offers a valuable financial tool, the Land Remediation Relief (LRR) tax credit, to promote the revitalisation and redevelopment of contaminated or derelict land. By offsetting the costs of land remediation, this tax incentive presents a significant opportunity for businesses to maximise their financial advantage.
This article will delve into the specifics of the LRR tax benefits and the financial advantages and providing practical insights into how businesses can use this relief to their advantage.
Land Remediation Tax Relief
Land Remediation Relief is only available for corporate entities and not available to individual or partnership. However, a company that is a member of a partnership can make an election in respect of its share of the partnership’s land remediation expenditure.
A point to be noted is that the Land must be contaminated at the time of acquisition, and it should not have been contaminated by the acquiring company.
A detailed case study on a similar situation has been explained on "Real life example of Land Remediation Relief in action" article.
Let us understand the reliefs available under Land Remediation.
For Loss making companies
150% of qualifying expenditure
50% of qualifying expenditure
16% of surrendered loss (or 24% of qualifying expenditure)
Relief for The Landowner
As stated above, the property investor or owner occupier are eligible to claim 150% of the qualifying expenditure as the additional tax deduction for the computation of the taxable profit.
The relief can be claimed within 2 years from the end of the accounting period in which the expenditure was incurred. To learn more about timing of Land REMEDIATION, Please continue to read "what is Land Remediation Relief Really All About? ".
From 1 April 2009, the company must have acquired a ‘major interest in the land’ in the UK for claiming the Land Remediation Relief.
The ‘major interest in land’ is when:
- The company owns the land, or
- The company is granted a lease of at least 7 years over the land, or
- The company is assigned a lease with at least 7 years remaining.
Let us understand this with an example,
A Ltd has acquired a land which was contaminated at the time of acquisition. The company has incurred £10,000 on the cleaning of the land including other qualifying cost. The company’s taxable profit before LRR is £40,000.
Therefore, there is a saving of £2,850 in corporation tax by claiming Land Remediation tax relief.
A profit making company can claim an additional tax saving of 28.5% on the qualifying expenditure incurred.
The benefit from Land Remediation relief is even more if the taxable profit of the company is more than £50,000 as per the new changes in the corporation tax rate from 1 April 2023.
Relief for Developer
Property developers engaged in the land remediation; the relief can be made for 50% of qualifying cost.
The relief for developer can be claimed within 4 years from the end of accounting period in which property was sold.
Based on the taxable profit, the tax relief of minimum 9.5% of the qualifying expenditure can be claimed by the property developer.
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Assuming the developer spent £80,000 as a qualifying expenditure, the additional tax deduction will be 50% of £80,000 i.e., £40,000.
This will result in additional tax saving of £7,600 (assuming corporation tax rate being 19%).
The relief could be upward up to 12.5% if the taxable profit of the developer company is north of £250,000.
Relief for Loss Making Companies
A company has a qualifying land remediation loss for an accounting period if:
- Carries on a trade or property business, and
- Makes a valid claim for the Land Remediation relief.
- Incurs the loss in the trade or property business.
However, the amount of the qualifying land remediation loss for an accounting period will be lower of:
- The amount of the company’s unrelieved trading loss or property loss, and
- 150% of the qualifying land remediation expenditure for that period
Note: Unrelieved loss does not include any trading loss or property business loss that has been brought forwarded from earlier accounting year.
A Ltd is engaged in a trade and incurs qualifying land remediation expenditures of £50,000 during a period of accounting. The expenditure is deductible when calculating its trading loss for tax purposes. In addition, A Ltd claim £25,000 in land remediation relief in relation to the expenditure.
A Ltd has a total trading loss of £80,000 for the accounting period after taking into account all other expenses. The company's other income for the accounting period is £10,000.
A Ltd submits a claim to surrender the full amount of its qualifying land remediation loss in exchange for a payment of land remediation tax credit, but no other loss relief or group relief claims are submitted for the period.
The tax credit will be computed as follows:
Eligible land remediation cost
(£50,000 x 150%)
Unrelieved trading loss
(£80,000 - £10,000)
Qualifying land remediation loss (Surrendered loss)
(16% of surrendered loss)
Trading loss carry forwarded will be £10,000 i.e., total loss less surrendered loss.
Claiming the Land Remediation Tax Benefit
Land Remediation Relief must be claimed in a corporation tax return. LRR is not available for the expenditure on which the Capital allowance has been or may be made. In case of CGT, expenditure relating to LRR is not an allowable deduction.
A claim for land remediation tax credit must be made in the relevant tax return and can only be amended by amending the return. The company making the qualifying land remediation expenditure can get the relief by disclosing the same in the tax return. The claim must be made within the time limit as discussed earlier.
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All things considered, Land Remediation Relief is a significant tax benefit that can greatly benefit landowners, builders, and even financially struggling businesses.
Wherever corporations are required to pay corporation tax, they are eligible for this tax break when investing in commercial property. Unlike capital allowances, LRR is open to both landlords and builders.
Both capital and revenue expenditures qualify for Land Remediation Relief, but only if the company makes the election to do so within two years of the end of the accounting period in which the expenditure is incurred.
Contact us today for more information, or to start your journey towards maximising your financial advantage.
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