TAX: Remove Barriers to Brownfield Development

Labour’s manifesto included several key points in respect of housebuilding and the provision of affordable housing, including a pledge to build 1.5 million new homes. Whilst promising a ‘brownfield first’ approach, Labour also pledged to prioritise the release of lower quality grey belt land for development, including areas like car parks.

Brownfield land is land that has previously been used for industrial or commercial purposes and may be polluted as a result of those activities. It accounts for around 8.7% of land in England and 54% of new homes built in 2021/22 were on brownfield land, but brownfield and grey belt land is often more complicated to redevelop and less commercially viable than greenfield land. Targeted use of the tax system can remove barriers to redevelopment and incentivise regeneration. One particularly generous, but underutilised tax relief which was introduced to incentivise the regeneration of brownfield sites is Land Remediation Relief (LRR).

Currently, LRR offers a 150% corporation tax deduction on qualifying expenditure for cleaning up contaminated land and bringing derelict land back into use in the UK. Non-profitable companies can claim a 16% tax credit on qualifying expenditure. This relief is potentially available to both developers and investors. As a tax relief that incentivises sustainable development and regeneration, it aligns with Labour’s housing, construction and economic growth plans.

However, the tax relief criteria for LRR includes the ‘polluter pays principle’ meaning the relief will not apply if the company or someone connected to the company are responsible for contamination or dereliction. While this principle makes sense, the legislation is broadly drafted and sometimes fails in practice.

In broad terms here are three examples where the legislation restricts relief for redevelopment.

• Granting of long leases to developers on public land that is contaminated. In this scenario the developer is denied the additional tax relief for any costs on remediating the land, as the polluter retains an interest.
• ‘Slice of the action’ contracts also restrict relief. In these contracts, the landowner sells the land to a developer with a consideration based on the development’s success. For example, the landowner gets a fixed sum for the land plus a share of the sale proceeds from each property. If the owner is the polluter the developer is denied LRR.
• Defining derelict land as being derelict and unused since 1998 (26 years) and denying the relief if any economic activity has taken place on the site – for example using hard standing as a car parking facility when sports events etc take place nearby.

To address this, along with other shortcomings and truly incentivise regeneration of previously used land, the Chancellor could take a few simple steps in this month’s Budget.

• Where the site is contaminated, treat the acquisition of a lease of 99 years or longer as being equivalent to acquiring the freehold. This would turbo charge the regeneration of public land – old military bases, former hospital/school sites as well as those owned by councils.
• Extend the relief from corporation taxpayers to other businesses. This would help drive bottom-up regeneration by extending the incentive across the whole construction industry to include partnerships and sole traders – and meet a key principle of treating materially identical transactions in the same way regardless of the entity undertaking that transaction.
• Update the derelict land definition from a static date (1998) to being 12 years from the date the site is acquired, and allow a deminimus amount of low impact economic activity eg car parking to be undertaken on the site up until the grant of planning consent.

Our final ask would be that the government then commit to leaving this legislation untouched for the remaining parliamentary term, allowing businesses to have confidence to make long-term investment decisions that take account of the tax reliefs available.