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Readers forum - Decontamination

22 September 2005
Issue: 4026 / Categories:

A company capitalised £600,000 of expenditure relating to putting new walls and a new roof onto a building that was several decades old. The only thing that remained from the original building was the steel shell. The building which is now to be let out has been improved significantly and as such will now command a higher rent. Is it only the cost of the asbestos and tritium surveys and the removal of these materials (approximately £30,000) that will qualify for land remediation relief under FA 2001, Sch 22 or would the whole £600,000 cost qualify including the new steel coating?

A company capitalised £600,000 of expenditure relating to putting new walls and a new roof onto a building that was several decades old. The only thing that remained from the original building was the steel shell. The building which is now to be let out has been improved significantly and as such will now command a higher rent. Is it only the cost of the asbestos and tritium surveys and the removal of these materials (approximately £30,000) that will qualify for land remediation relief under FA 2001, Sch 22 or would the whole £600,000 cost qualify including the new steel coating?
The company's motives in doing the work were partly to improve a decrepit old building (and command a higher rent) and partly to remove the asbestos. The contamination occurred before the company acquired the building.
Readers' views on the eligibility for relief are welcomed.
Query T16,683  — Builder.


Reply by Exile:

Under FA 2001, Sch 22 para 4(3), relief is due for expenditure that is incurred for: 'the purpose ... of: (a) preventing or minimising, or remedying or mitigating the effects of, any harm, or any pollution of controlled waters, by reason of which the land is in a contaminated state; or (b) restoring the land or waters to their former state.' This would seem to deny any relief at all, since the purpose was said not to be to clear the contamination, but to improve a decrepit building. However, that is not the end of the matter. Sch 22 para 7 states that:

'(2) If expenditure on the land is increased by reason only that the land is in a contaminated state, the amount by which such expenditure is increased shall be considered to be expenditure satisfying the condition in para 2(5).
'(3) If any works are done, operations are carried out or steps are taken mainly for the purpose described in para 4(3), expenditure on such works, operations or steps shall be taken to satisfy the condition in para 2(5).'

The end result is that the £30,000 qualifies. Whether any of the other costs will qualify will depend upon some further analysis. What parts of the building were covered by asbestos? Removing the asbestos qualifies, but you cannot have a building without a roof and walls. How much of the additional costs were taken up with replacing the contaminated material with new material? Those costs should qualify.


Reply by Brumus:

It does seem to me, as a newcomer to land remediation relief, that the legislation could have been termed somewhat more clearly. FA 2001, Sch 22 starts off by talking about capital expenditure and expenditure on land, which tends to lead one to think that the type of expenditure that could qualify is quite wide. Sch 22 para 2 deals with 'qualifying land remediation expenditure' and defines this as expenditure that 'meets the conditions in subparagraphs (2) to (6)' and proceeds to set out five conditions. At first sight, one could think that the expenditure could qualify if it met any one or more of the conditions. However, on closer inspection (which I think could have been made entirely clear by the addition of the words 'all of' after the word 'meets' above), I think that the net effect of Sch 22 para 2 could best be described as a funnel, which gradually narrows the expense.

  • First, it must be on contaminated land.
  • Secondly, it must be on 'relevant land remediation'.
  • Thirdly, the expenditure must be on employee costs, materials or subcontracted work.
  • Fourthly, the expenditure would not have been incurred had the land not been contaminated.
  • Finally, the expenditure must not have been subsidised.

In this particular case, I think that the fourth point above is the one worth focusing in on. It was only the £30,000 that was incurred only because the land was in a contaminated state and that is the figure that one must start from. At first sight, the whole of the £30,000 would seem to qualify, but I would suggest that Builder studies Sch 22 and the articles by Neil Beaumont ('Our green and pleasant land', Taxation, 13 September 2003) and Kevin Slevin (Decontaminate and be damned', Taxation, 7 October 2004), which will make useful reading as will the replies to the query 'On or off?', Taxation, 18 September 2003, which also related to asbestos removal.
Whether any of the additional costs will qualify is difficult to say. Expenditure on 'materials' is allowable, but only in accordance with Sch 22 para 6, which states that these must be 'employed directly in that relevant land remediation. That seems unlikely here, especially as the original materials appear to have been completely replaced rather than, say, having been repaired or sealed up. It is also tempting to think that payments to subcontractors in respect of such work may somehow enhance the allowable amount, but it is worth noting that Sch 22 para 9 (which precedes para 10 and 11 that deal with subcontracted payments) notes that the payments must still relate to 'relevant land remediation'.  

Issue: 4026 / Categories:
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