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Finance Act 2009

Section 26 and Schedule 7: Contaminated and Derelict Land

Summary

1.Section 26 and Schedule 7 amend Part 14 of the Corporation Tax Act 2009 (CTA), commonly referred to as Land Remediation Relief. The amendments are to extend the scope of the relief to the bringing of long term derelict land back into productive use and to refocus the existing relief on bringing land contaminated by previous industrial use back into productive use.

Details of the Schedule:

2.Paragraphs 2 and 3 amend the heading of Part 14 of CTA and sections 1143(1) & (7) to reflect the extension of the relief to include derelict land.

3.Paragraph 4(2) amends the wording of section 1144(1) to reflect the inclusion of an additional condition for qualifying expenditure “Condition F”.

4.Paragraphs 4(3) to (5) make necessary amendments to reflect the extension of the relief to include derelict land.

5.Paragraph 4(6) amends section 1144 (5), “Condition D”, to reflect the changes to the rules on payments to sub-contractors. New section 1144(5)(c) applies to give relief for qualifying land remediation expenditure paid to unconnected sub-contractors. The new section 1144(5)(d) gives relief for qualifying land remediation expenditure paid to connected sub-contractors, as calculated in section 1175.

6.Paragraph 4(7) inserts a new section 1144(6A) with a new Condition F. This condition provides that qualifying expenditure does not include expenditure incurred on paying landfill tax.

7.Paragraph 5 replaces the existing section 1145 with a new section 1145, which defines land “in a contaminated state”, section 1145A, which defines land “in a derelict state” and section 1145B, which excludes nuclear sites.

8.Paragraph 6(2)(a) amends section 1146(1) to reflect that section 1146 only applies to “relevant contaminated land remediation” and that a new section is being introduced for “relevant derelict land remediation.”

9.Paragraph 6(2)(b) amends section 1146(1)(a) to reflect that a new condition C must also be met if works are to qualify as “relevant land remediation”.

10.Paragraph 6(3) amends section 1146(3)(a) to reflect the concept of “relevant harm” as defined in new section 1145(4). As part of the changes the sub-paragraph also deletes section 1146(3)(b).

11.Paragraph 6(4) inserts a new section 1146(3A), “Condition C” which gives HM Treasury the power to exclude by order methods of remediation that are considered inappropriate.

12.Paragraph 6(5) amends section 1146(5) to reflect the changes in what constitutes contaminated land.

13.Paragraph 6(6) amends the heading of section 1146 to reflect that the section only applies to contaminated land.

14.Paragraph 7 adds a new section 1146A “Relevant derelict land remediation”, which defines those activities that qualify as relevant derelict land remediation.

15.Paragraph 8 amends the heading of chapter 2 of Part 14, to reflect the extension of the relief to include derelict land.

16.Paragraph 9(2) amends section 1147(2), “Condition A”. It reflects the introduction of the concept that to qualify a company must hold a major interest in the land.

17.Paragraph 9(3) amends section 1147(3), “Condition B”, to reflect the extension of the relief to include derelict land.

18.Paragraph 10(2) amends section 1149(2), “Condition A”. It reflects the introduction of the concept that to qualify a company must hold a major interest in the land.

19.Paragraph 10(3) introduces a replacement section 1149(3) that reflects the extension of the relief to include derelict land.

20.The new section 1149(3)(b) sets out that to qualify, derelict land has to have been derelict throughout the period from 1 April 1998, or acquisition (if earlier).

21.The new section 1149(3A)(a) allows HM Treasury to specify, by order, circumstances in which work may be qualifying expenditure for the purposes of Part 14 of CTA even though the contamination occurred during the period of ownership.

22.The new section 1149(3A)(b) allows HM Treasury to amend by order the date set out in section 1149(3)(b)(ii), currently 1 April 1998.

23.Paragraphs 11(3) and (5) amend section 1150 to reflect the extension of the relief to include derelict land and the exclusion of cases where the polluter may indirectly benefit from the relief.

24.Paragraph 11(4) introduces new sections 1150(2) and 1150(3).

25.Section 1150(2) denies relief if the person responsible, whether wholly or in part, for the land being in a contaminated or derelict state, or a person connected with that person has a “relevant interest in the land”.

26.Section 1150(3) sets out what is a “relevant interest in the land”. It means that relief is not available under Part 14 of CTA if the polluter, or a person connected to the polluter retains an interest in the land such as a licence to occupy. It excludes from the relief cases where the polluter sells the land with an option to re-acquire the land after it has been cleaned up. Section 1150 (3)(b) excludes cases where the consideration received by the polluter reflects the value of the land after remediation. This is so that the polluter does not indirectly obtain the benefit of the relief.

27.Paragraph 12(2) amends section 1161(2), “Condition A”. It reflects the introduction of the concept that to qualify a company must hold a major interest in the land.

28.Paragraph 12(3) amends section 1161 to reflect the extension of the relief to include derelict land and introduces new section 1161(3A).

29.New section 1161(3)(b) sets out that to qualify, derelict land has to have been derelict throughout the period from 1 April 1998, or acquisition (if earlier).

30.New section 1161(3A)(a) allows HM Treasury to specify, by order, circumstances in which work may be qualifying expenditure for the purposes of Part 14 of CTA even though the contamination occurred during the period of ownership.

31.New section 1161(3A)(b) allows HM Treasury to amend by order the date set out in section 1161 (3)(b)(ii), currently 1 April 1998.

32.Paragraph 13 introduces a replacement section 1162 that aligns the treatment of life insurance companies with that of other companies.

33.Paragraph 14 amends section 1163 to reflect the extension of the relief to include derelict land.

34.Paragraph 14(4) introduces new sections 1163(2) and (3). These mean that relief is not available under Part 14 of CTA if the polluter, or a person connected to the polluter retains an interest in the land, such as a licence to occupy. It excludes cases where the polluter sells the land, with an option to re-acquire the land after it has been cleaned up. It also excludes cases where the consideration received by the polluter reflects the value of the land after remediation. This is so that the polluter does not indirectly obtain the benefit of the relief.

35.Paragraph 17 amends section 1173 to reflect the extension of the relief to include derelict land.

36.Paragraph 18 deletes section 1174, the introductory section on subcontractor payments. This reflects that the rules on sub-contractor payments are being amended so that they no longer apply to payments to unconnected sub-contractors.

37.Paragraph 19 amends section 1175 so that the rules on sub-contractor payments no longer apply to unconnected sub-contractors.

38.Paragraph 19(2) inserts a new subsection (1A) into section 1175 which defines a “sub–contractor payment”.

39.Paragraph 19(3) amends section 1175(2) so that the subsection defines the amount of “qualifying expenditure on connected sub-contracted land remediation”.

40.Paragraph 19(4) amends sections 1175(3)(a)-(b) so that it includes both expenditure incurred by the sub-contractor and also expenditure incurred by another person to whom the sub-contractor further sub–contracts the work.

41.Paragraph 20 deletes section 1176, “qualifying expenditure on sub–contracted land remediation: other cases” so that there will be no special rules on payments to unconnected sub-contractors.

42.Paragraph 21 amends section 1178, (“persons having a “relevant connection” to a company) to reflect the extension of the relief to derelict land and the introduction of the concept that to qualify a company must hold a major interest in the land.

43.Paragraph 22 inserts a new section 1178A which introduces and defines a “major interest in land”. This provides a clearer definition of the interest in land needed to qualify for relief under Part 14 of CTA.

44.Section 1178A(2) sets out the meaning “of a freehold interest in the land” under the land law in England and Wales, Scotland and Northern Ireland.

45.Section 1178A(3) sets out the meaning of “the acquisition of a relevant leasehold interest in land” under the land law in England and Wales, Scotland and Northern Ireland.

46.Section 1178A(4) sets out the minimum length of a lease qualifying as a major interest in land for the purposes of Part 14 of CTA.

47.Paragraph 23 amends section 1179, deleting the references to “harm”, “Land” and “substance”.

48.Paragraph 24 makes various amendments to section 76(7) of the Income and Corporation Taxes Act 1988, which are required as result of these legislative changes.

49.Paragraph 25 makes various amendments to Schedule 18 to Finance Act 1998, which are required as result of these legislative changes.

50.Paragraph 26 makes various amendments to Schedule 4 (index of expressions) to CTA which are required as result of these legislative changes.

51.Paragraph 27 sets out that orders made before 6 April 2010 under powers in the Schedule may have effect for expenditure incurred on or after 1 April 2009.

52.Paragraph 28 applies the amended Land Remediation Relief to expenditure incurred on or after 1 April 2009. It also excludes from the scope of the amended Land Remediation Relief, expenditure actually incurred before 1 April 2009, but deemed to have been incurred on or after 1 April 2009 under section 61 of CTA (pre–trading expenditure).

Background Note

53.In 2004, the Barker Review of Housing Supply recommended that Land Remediation Relief should be extended to promote the remediation of long-term derelict sites.

54.The Government published its response to the consultation in “Tax incentives for development of brown-field land: a consultation response”, in December 2007. In this the Government announced its intention to extend Land Remediation Relief to provide an incentive to bring long term derelict land back into productive use. The Government also announced its intention to extend Land Remediation Relief to include the cost of removing Japanese Knotweed. These changes are to take effect from 1 April 2009.

55.This legislation both extends relief to expenditure on long-term derelict land and refocuses the existing relief on the remediation of land contaminated by previous industrial activity or on the removal of Japanese Knotweed.

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