Plans to invest £1.8bn in the development of brownfield sites were unveiled by the Government back in 2021. The proposals were designed to help improve local areas and show the necessary support individuals needed to enter the property market.
Within the agreement, it stated that 1,500 hectares of brownfield land would be utilised for the creation of 160,000 new homes, presenting itself as a prime opportunity for developers to undertake projects of this nature. Besides the reservation of grant funding on application, developers could also further maximise their profits through utilisation of land remediation relief, which grants 150 per cent deduction from qualifying expenditure.
Although these proposals were unveiled under the previous Conservative Government, there remains untapped potential for developers to take advantage of this investment. The new Labour Government have announced that brownfield land will be a primary focus under their new plans.
Brownfield site development plan
The sum of £1.8bn was slated to be a combination of locally led grant funding, allocated to local authorities with a proportion earmarked for transport links, community facilities, and underused land like brownfield sites. As a result of the project, developers will likely qualify for land remediation relief and reduce their taxable profits due to potential contamination from multiple brownfield sites.
What is land remediation relief?
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 for assessing site contamination and implementing measurable procedures to control the level. The aim is to mitigate potential harm towards people and the environment to an acceptable level. Furthermore, expenses towards materials purchased for the project, as well as costs for employing staff or subcontractors are also eligible to be claimed.
Exclusions
Developers must be mindful that land remediation relief cannot be claimed in certain situations. An example of a scenario is where the business has already received a government grant awarded for the same intention in decontaminating a brownfield site. However, in circumstances where costs incurred in the process exceed the value of the grant provided, developers can then claim back this amount.
Monitoring allocation of costs
Where it is difficult to accurately determine 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 qualifies as a claim for land remediation relief?
Before taking on any land remediation projects, developers need to identify the nature of the contamination and whether HMRC’s criteria is met, which will determine whether it will quality 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 from a natural source, such as water, air, living or decaying matter from living organisms, etc. Due to the difficulty in measuring the natural cause for contamination, the amount received from land remediation relief may be limited.
The importance of advice
In addition to seeking expert advice at an early stage in remediation projects, developers should also document all costs incurred throughout the project and ensure that costs related to employing subcontractors are as detailed as possible. Following this protocol will heavily boost their chances of successfully claiming land remediation relief.
Overall, the Government’s investment in brownfield site development offers a substantial opportunity for developers, and to accommodate the project, it is imperative to fully utilise the tax relief made available. This can be done with a clear understanding of the criteria set by HMRC for claiming land remediation relief, whilst seeking expert advice where necessary. In completion of development projects – developers will look forward to maximising tax savings by addressing contaminated land in the correct manner following the in-depth guide provided above.
For more information on tax relief as part of new investment in brownfield sites, contact Natasha Spicer below:.
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