News update
Following the proposed changes to Land Remediation Relief (LRR) published in the Pre Budget Report 2008, HMRC have now issued draft guidance and regulations to give interested parties opportunity to comment. As a reminder, expenditure qualifying for LRR provides a valuable 150% tax relief or if the company is loss making, a tax credit from HMRC of 24% of the expenditure incurred.
- From 1 April 2009, LRR will be extended to remediating long term derelict land. This is currently defined as derelict on 1 April 1998 and continuously derelict since that date.
- The English National Land Use Database (NLUD), Paragraph 11.2 defines derelict land and is accepted by HMRC as evidence to support a claim for derelict land. Where the land is not on the NLUD, other information is acceptable such as survey at acquisition or estate agents literature.
- LRR will be available on specified expenditure currently defined as qualifying costs on the removal of:
- post-tensioned concrete heavyweight construction;
- foundations of buildings or other structures or machinery bases;
- reinforced concrete pilecaps;
- reinforced concrete basements; or
- underground pipes or other apparatus for the supply of electricity, water or telecommunication services or for drainage or sewerage.
- LRR will still be denied where the claimant or a connected party caused the dereliction after acquiring the land.
Asbestos Removal Potential Restriction: Revised Definition
- LRR is amended from 1 April 2009 so that only costs of removing contaminants that are present as the result of industrial activity qualify for LRR.
- The guidance suggests relief will continue to be available for the removal of asbestos from office environments as these buildings are deemed to be the product of industrial activity (i.e. the construction industry).
- LRR will be given for the cost of removing contamination, not for any subsequent works.
- Risk assessments carried out by developers, usually as part of the planning process on contaminated sites will be capable of use as evidence of the probable cause of the pollution being the result of industrial activity.
Removal of Japanese Knotweed
- Previously HMRC have denied LRR claims for treating knotweed as it is a life form and fails the definition of substance. However HMRC now accept that from 1 April 2009, land infested with knotweed is contaminated for the purposes of LRR.
- Any open or in date claims will be settled on the above basis.
- LRR is denied from 1 April 2009 where the knotweed is removed to landfill.
- From 1 April 2009, the requirement that the land must be contaminated at acquisition does not apply to Japanese Knotweed (i.e. it may initially have been introduced via fly-tipping).
- LRR will still be denied where the claimant planted the knotweed or where they allowed it to spread to a significantly larger areas on the site during the period of ownership.
- LRR will also be extended to specified naturally occurring contaminants which can cause a market failure. This includes the treatment of radon and arsenic. It is not necessary to prove contamination from these causes is a result of industrial activity.
Work Carried Out Under Statutory Obligation
- LRR is denied from 1 April 2009 where expenditure is incurred in fulfillment of certain statutory obligations (e.g. work required on dangerous building)
- The exclusion only applies where a statutory notice has been served, not where work has been carried out prior to the issue of a notice.
Sub Contractors
- LRR is amended from 1 April 2009 so that relief is available where that work is sub-contracted to a connected party who in turn sub-contracts the work. The qualifying expenditure of the sub-contractor must be incurred on employee costs and materials, not be of a capital nature and not be subsidized.
Other points
- LRR cannot be claimed where the expenditure qualifies for any capital allowances. Significantly, this includes where it qualifies for plant and machinery allowances or where the property is in a disadvantaged area and the expenditure qualifies for Business Premises Renovation Allowances.
- Transitional rules apply when a company starts trading after 1 April 2009 and before that date it had incurred expenditure on land remediation which is treated as being incurred on the first day of trading under the pre-trading expenditure legislation, the LRR rules that apply are those that existed at the date expenditure was actually incurred.
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