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The government has published a response to its consultation 'Land Remediation Relief' (LRR). 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.

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 an additional 50% for qualifying revenue expenditure and 150% for qualifying capital expenditure.

It has two components: contaminated land and derelict land.

Contaminated land relief gives relief for expenditure on preventing, minimising or remedying harm caused by contamination. Derelict land relief is for land that cannot be made productive without removing buildings or structures, provided it has been continuously derelict since 1 April 1998.

The consultation 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. 

SMEs reported significant administrative challenges as remediation costs are often embedded within wider contractor pricing, making it difficult to identify qualifying expenditure. There were also inconsistent interpretations of the rules and a lack of clear HMRC guidance.

Interestingly, the payable tax credit had a limited influence on a project. Many businesses preferred 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.

The government has concluded that LRR is not meeting its intended objective of materially incentivising brownfield development. While LRR remains valuable for some marginal or highly contaminated sites, the government sees a compelling case for reform rather than abolition.

Further details will be published in due course.