The Government recently announced that it intends to abolish land remediation relief (LRR) after 2012. The earliest date for the withdrawal is likely to be April 2013, unless lobbyists can persuade the Government to make a welcome ‘U-turn’.
BDO is ready to take up the cudgels and to lobby the Government on behalf of its clients in defending this important relief, not just because of the money at stake, but the message it sends out.
LRR was introduced in 2001 to help pay for the cost of cleaning up contaminated land. It was extended in 2009 to tackle the problem of derelict buildings and Japanese Knotweed. LRR was designed to promote brownfield developments and encourage urban renewal.
Surely the Government is not suggesting that brownfield developments are no longer desirable?
In 2003, The Barker Review of Housing Supply indicated that 39,000 homes needed to be constructed each year in the UK. By 2008, 78% of homes were being built on brownfield sites – a significant increase.
Withdrawing the relief will have an impact on volume house builders and major developers and is likely to result in less investment in marginal brownfield sites.
The loss of LRR will undermine the financial viability of some brownfield projects and, in the longer term, may result in more houses being built on floodplains – not a desirable outcome.
LRR was intended to provide people with an incentive to alter their behaviour by persuading them to clean up existing sites rather than to develop greenfield sites. The Government has now decided that the take up for LRR was not high enough, because ‘tax’ does not drive development decisions.
It was obvious from the start that no developer was going to choose a brownfield development over a greenfield development purely because of the tax-breaks available. However, particularly in difficult economic times, the right kind of tax incentive has to be a good thing.
The ‘use it or lose it’ principle should not apply to serious issues like tackling urban blight. If LRR is not achieving its objectives, it should be re-thought and re-targeted not abolished.
LRR is a generous tax-break, particularly for investors. However, one of the more obvious flaws in the current system of LRR is that only companies subject to corporation tax can claim it. This leaves some stakeholders out in the cold.
Charities, Local Authorities and others cannot benefit directly from LRR despite being some of the key stakeholders in urban regeneration projects. This cannot be right.
Maybe the take up of LRR would be higher if more people were eligible to claim it?
Unless the Government bows to pressure, and reverses its decision, the abolition of LRR will follow closely on the heels of the scrapping in the use of landfill tax exemption certificates. The last of these certificates was issued on 30 November 2008 and allowed people to move an agreed amount of contaminated waste to designated landfill sites. No new certificates have been available since 2008.
Any existing certificates must be used to move contaminated waste by 31 March 2012, or landfill tax will be payable at £64 per tonne - another case of ‘use it or lose it’.
The Government may be hoping that ‘necessity will be the mother of invention’ and that developers will respond to this reduction in tax-breaks by coming up with new and innovative ways of tackling contamination problems. Perhaps this is why the tax credit system for research and development work is becoming more generous in an effort to compensate?
Some developers have already taken up the challenge and found novel and interesting ways of dealing with land remediation problems and their commitment to protecting the environment will encourage them to continue their work with or without the tax breaks. However, there are others who may now feel that brownfield developments, particularly on marginal sites, should be put back on the ‘too difficult pile’.
This would be a hugely disappointing result and would send out completely the wrong message to developers and investors alike.