Did you know that it’s possible, through corporation tax, to claim 150% of costs for work carried out as part of cleaning up land and buildings acquired in a contaminated state.. and this includes asbestos?
If you have property and/or land that might be relevant, read on..
Land remediation relief (LRR) can provide tax relief in all commercial property sectors where companies are subject to corporation tax. Unlike capital allowances, LRR is available to property investors and developers alike.
The types of relief are as follows:
- Owner occupier / investor rate – 150%
- Developer rate – 50%
- For loss making companies a tax credit (cash in hand) can be claimed – 24%
Qualifying costs include the remediation of contaminated land, removal of asbestos from buildings, breaking-out buried structures and the treatment of harmful organisms and naturally occurring contaminants such as Japanese Knotweed, radon and arsenic. Relief can be made available on developments, regeneration projects, fit-outs and refurbishments.
The time limit for retrospective claims is up to 3 years.
LRR can provide tangible cash savings, in particular where the 150% owner occupier / investor rate (for UK companies only) is claimed.
LRR is often not maximised, as it must be actively claimed. If the savings are factored into appraisals at bid stage, prospective bidders may be able to enhance their bid accordingly.
There are, of course, certain conditions..
Where property is held as an asset, such as a retail portfolio, the full 150% must be claimed in the year in which the expenditure was incurred. In cash terms this equates to a 30% saving (assuming 20% corporation tax) on all expenditure claimed on LRR.
Where property is traded (eg by developers) a 50% benefit is realised, as all construction expenditure (100%) is fully written off to the profit and loss account, enabling the excess over 50% to be claimed. The excess over 50% LRR is only available to claim on disposal of the property. In cash terms this equates to a 10% saving (assuming 20% corporation tax) on all expenditure claimed on LRR.
You cannot claim if..
- the land is in a contaminated state due to the claimant company
- the claimant company does not have a ‘major interest’ (freehold or a minimum lease of 7 years)
- the expenditure has been subsidised, for example by grant funding
- the acquisition cost of the land was specifically discounted in order to account for the cost of remediation works and stated as such in the purchase agreement.
ACMS UK comments..
At ACMS UK we have helped clients to offset asbestos remedial work costs by bringing into play the above. It has allowed clients to make the repairs and changes needed to their buildings, both structurally and internally, that has helped them maintain and grow their business as well as know that their asbestos risk has been negated. For more independent information, check out https://www.gov.uk/hmrc-internal-manuals/corporate-intangibles-research-and-development-manual/cird60015
Below are a couple of examples by way of illustration:
Company A acquires contaminated land as trading stock as part of its property dealing trade. The company incurs £100,000 qualifying remediation expenditure in the accounting period. It treats the expenditure as a revenue deduction in its Profit and Loss account.
The company can claim a further deduction of £50 000 in its Case 1 tax computation, giving it a total enhanced deduction of £150,000 for the accounting period.
Company B acquired contaminated land as a fixed capital asset of its trade or Schedule A business. The company incurs £100,000 capital expenditure on qualifying land remediation in an accounting period.
Provided it makes an election for the capital expenditure to be allowed as a deduction for tax purposes, it can claim a further deduction of £50,000, giving it an enhanced deduction of £150,000 in its Case 1 or Schedule A tax computation of the accounting period.
The claim is made via the company’s tax return, therefore, the onus is on the taxpayer to substantiate the claim. This will involve properly certifying the expenditure, recording all the necessary data, and collating documentary evidence in case the Revenue decide to raise an enquiry.
On submission of a claim the Inland Revenue will deal with it in either two ways. Firstly, they will accept the claim and make no mention of the figures. Alternatively, they will write to the claimant company formally asking specific questions. This can range from simple query of eligibility, to a full enquiry covering the process and systems used to compile the claim as well as statements of fact.
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