The government has published a response to its consultation 'Land Remediation Relief'. The review sought to understand whether the Corporation Tax relief continues to incentivise the redevelopment of brownfield land and whether reforms are needed to ensure it remains effective, accessible and aligned with modern remediation practices.
Background
At Budget 2024, the government announced a review of Land Remediation Relief (LRR), with a consultation planned for Spring 2025 to assess whether it still effectively encourages brownfield land development.
LRR is a Corporation Tax relief designed to support the regeneration of contaminated or long-derelict land and reduce pressure to develop greenfield sites.
The relief allows companies to claim enhanced deductions:
- An additional 50% for qualifying revenue expenditure and 150% for qualifying capital expenditure.
- Loss-making companies may surrender losses for a 16% payable tax credit.
The regime has two components:
- Contaminated land: relief for expenditure on preventing, minimising or remedying harm caused by contamination.
- Derelict land: relief where land cannot be made productive without removing buildings or structures, provided it has been continuously derelict since 1 April 1998.
Responses
The consultation received over 30 written responses and feedback from nine roundtable discussions.
- Most respondents said that LRR rarely drives site selection.
- Commercial factors such as planning risk, build costs and market conditions determine whether a site is taken forward.
- LRR is seldom considered at the outset because qualifying costs cannot be reliably estimated until intrusive investigations begin.
- Many respondents said the scope of qualifying expenditure is too narrow.
- Activities such as certain demolition works, mineshaft grouting, gas-holder remediation and some invasive species removal fall outside the regime, despite being essential to making land developable.
- The definition of derelict land was widely criticised.
- The requirement that land must have been unused since 1 April 1998 was described as outdated and difficult to evidence.
- The 'continuous use' requirement was also seen as arbitrary.
- 'Polluter pays' rules were viewed as overly restrictive.
- SMEs reported significant administrative challenges.
- Remediation costs are often embedded within wider contractor pricing, making it difficult to identify qualifying expenditure.
- Respondents also highlighted inconsistent interpretation of the rules and a lack of clear HMRC guidance.
- Developer-traders noted timing issues.
- Because housing units are treated as trading stock, relief is often only realised on sale, creating delays between incurring remediation costs and receiving the tax benefit.
- The payable tax credit was seen as having limited influence.
- While it can support cash flow for loss-making companies, many businesses prefer to carry losses forward for relief at higher tax rates.
- Views on grants were mixed. Grants can materially affect viability but are discretionary and slow to secure. LRR is rules-based and predictable, but its benefit is delayed and often modest.
- Respondents did not identify significant fraud risks. Most respondents proposed stronger compliance checks, supporting documentation and an additional information form for large claims to reduce errors and fraud.
Next steps
The government has concluded that LRR is not meeting its intended objective of materially incentivising brownfield development.
- The government recognises that LRR remains valuable for some marginal or highly contaminated sites and could still help businesses to develop and remediate brownfield sites.
- It therefore sees a compelling case for reform rather than abolition.
The government will now work with industry to explore potential reforms aimed at improving the relief's effectiveness, accessibility and cost-efficiency.
- Further details will be published in due course.
Useful guides on this topic
Land Remediation Relief (LRR)
What is Land Remediation Relief (LRR)? Who can claim LRR and what are the conditions? What happens if LRR creates or enhances a loss?
External link
Consultation outcome: Land Remediation Relief: Summary of Responses