There are a number of tax reliefs available to companies operating in the property, land and construction sectors, aimed to incentivise activity and investment from companies in specific areas.
One of the lesser-known reliefs is targeted to reward companies who have purchased contaminated or derelict land and who have spent money cleaning it up. This relief is known as Land Remediation Relief and is a form of relief on Corporation Tax.
If you have purchased land in a contaminated or derelict state, and spend money cleaning it up, you could be eligible for a deduction of 150% of the qualifying expenditure incurred on the project. For example, if you have spent £30,000 on eligible costs cleaning up an asbestos contaminated property, then instead of claiming a tax-deductible expense of £30,000, you would claim a deductible expense of £45,000. This relief would create tax savings of an additional £2,850 (based on a 19% tax rate). You also have the option if you were loss-making in the year, to surrender the loss for a 16% cash credit instead, resulting in a repayment from HMRC of up to £7,200 in the above scenario.
The costs you can claim include staff costs, subcontractor costs and the costs of materials incurred in restoring land from a contaminated or derelict state. This is, of course, only if you or any connected party were not responsible for the contamination and your land meets the Government’s criteria of ‘causing harm’.
Examples of more common areas where companies have benefited from the Land Remediation Relief include the removal of asbestos, the removal of Japanese knotweed, and bioremediation of land contaminated with oil. There are many other eligible areas which could qualify for Land Remediation Relief, so it’s always best to seek expert advice if you think you could be eligible to claim.
Another tax relief which many commercial property owners are unaware of are Embedded Capital Allowances. To explain Embedded Capital Allowances, we must first define Capital Allowances.
When a business purchases a capital asset, the cost of the asset isn’t tax deductible in the year of purchase, and the depreciation deducted in the accounts for the asset isn’t usually deductible either. Instead, businesses receive relief for their qualifying capital costs via Capital Allowances, at specific annual rates set by the Government. Some common examples of eligible assets include manufacturing equipment, cars, and IT equipment.
Embedded Capital Allowances can be complicated to distinguish, as they can often be included as a one-line item in the fixed asset register, such as ‘shop refurbishment work’, but can incorporate many different individual assets. For example, a shop refurbishment could include electrical work, air conditioning units, lighting systems etc. We typically see these types of assets in office refurbishments, property development work and property purchases.
These individual assets need categorising correctly under Capital Allowance rules, to assess whether they are a qualifying asset. Categorising assets can be tricky, as there is a vast amount of case law and legislation to analyse. For example, the tax treatment of a mezzanine floor can be dependent on a variety of factors such as the actual and intended use of the flooring, and whether it’s temporary or permanent. Even after these distinctions, some of the expenditure related to the mezzanine floor may not qualify, so it is important that expert advice is sought.
Embedded Capital Allowances and Land Remediation Relief are just two tax reliefs. It is always worth seeking expert advice when identifying whether you are eligible for a particular relief. As well as being able to identify what assets actually qualify for these reliefs, the expert is able to calculate correctly the amount of tax you will save.