|Revisions to the Tax Relief for Contaminated Land
The seemingly interminable wait for the revisions to the tax relief for contaminated land is finally over...well, almost. Draft legislation has been published with effect from 1 April 2009 and HM Revenue & Customs more recently released their accompanying draft guidance notes. We are now part way through a Government consultation period inviting comments on the drafts until the end of July.
At a general level, the Government's proposals are well intended. Broadly, the focus has been to redirect monies generated from the withdrawal of the landfill tax exemption for contaminated land to the more difficult brownfield sites. At the same time, steps have been taken to make sure that the "wrong" people - namely polluters - cannot benefit from the incentives.
However, the narrowness of the writing proposed in the amended legislation means that the "right" parties and sites will probably see a substantial reduction in the value of the incentive. The reality is very likely to fall short of the revenue neutrality for the redirected landfill tax exemption funds as claimed, and more likely to yield substantial savings for the Treasury.
In practice, the effects of the new legislation, once finalised, will take some time to measure. Industry awareness and uptake of the relief has increased, but still remains relatively low. Many are still getting up to speed with the old rules and are looking at retrospective claims to realise cash assets sat within their historic project portfolios.
But whilst the fundamental principles of the relief are largely unchanged, there are added complexities that may inhibit its uptake further. For example, a claimant must now hold a "major" interest in land going forwards which is a much stronger requirement than the original interest in land condition. The proposed definition of "major" will cause problems for some development agreement models which will fall short of meeting these criteria.
Also being introduced is strict anti-avoidance legislation to prevent polluters benefiting through artificial arrangements or additional consideration paid in respect of the land. As a result, some land transaction structures may prevent even a non-polluting party from benefiting in future when buying direct from a polluter.
It is easy to be cynical about some of the headline promises and to dismiss both the consultation and draft legislation as disingenuous. However, it would be foolish to conclude that the relief is not valuable. The additional tax relief can make a significant difference at a project level. For example, when faced with a £1m remediation bill, knowing that up to 42% can be recovered through the tax relief scheme could drastically alter the final decision on a project's viability.
Similarly, local authorities should look to use the availability of the relief to structure public-private partnerships in a way that allows the benefit to be realised and thus make their schemes more attractive. But one of the key barriers is that typically the benefit of the tax relief sits at a corporate level, operated through a company's accounts department, and is detached from a project's delivery decision makers. Very few claimants actually base decisions upon the net cost of remediation at appraisal stage.
In conclusion, as ever it can be argued that the Government could have done more and there are good reasons to make representations to that effect during this consultation period. However, more joined up thinking is equally required on the other side of the fence. The private sector should look to take steps to more closely align the benefit to the project that is ultimately responsible for bringing in the money in the first place.
Hilary Allen, from EIC members Davis Langdon LLP
Tel No: 0121 710 1327