HMRC change of view on the treatment of Japanese Knotweed

Since the introduction of the Remediation of Contaminated Land Tax Relief in 2001, there have been various discussions and debates with HMRC as to whether Japanese Knotweed was a contaminant and met the qualifying conditions for the relief.

Following consultation on tax incentives for development of brownfield land over the last two years, Finance Act 2009 will see the introduction of changes to the Remediation of Contaminated Land Tax Relief aimed at clarifying what qualifies and extending the relief to long term derelict land.

Japanese Knotweed (Fallopia japonica) is a particularly invasive species of plant that was originally introduced into the UK in the mid-nineteenth century as an ornamental garden plant and to stabilise embankments along railways and canals. Japanese Knotweed causes problems as it lacks natural predators in the UK and is very difficult to eradicate. It creates problems for wildlife as it invades natural habitats and blocks routes for normal plants and animals that normally live in an area. However, its vigorous growth can also cause severe damage to buildings and structures and once established underneath a built environment can be particularly hard to control. Where Japanese Knotweed is found on a site and is required to be removed, it must be treated and disposed of in a controlled way.

Under the original legislation, land was considered to be contaminated for the purposes of land remediation relief if a substance was present that caused or could cause harm. Substance was defined within Finance Act 2001 sch 22 as:

"Substance means any natural or artificial substance, whether in solid or liquid form or in the form of a gas or vapour."

HMRC's guidance stated:

"A substance is a matter having uniform properties. So for example, asbestos is a substance but life forms are not."

Therefore, although Japanese Knotweed would meet the other general conditions for contaminated land tax relief, HMRC considered that it would not qualify as it was a life form.

Pre Budget Report 2008 confirmed that contaminated land tax relief was to be extended to include Japanese Knotweed as HMRC now accepts it is sufficiently invasive and destructive to qualify as a contaminant for the purposes of land remediation relief.

Although not yet finally enacted, Finance Bill 2009 introduces changes from 1 April 2009 so that contaminated land tax relief will only be eligible for contamination arising as a result of former industrial activity and land will not be considered to be in a contaminated state as a result of living organisms or decaying matter deriving from living organisms, air or water. However, a specific Treasury Order will be introduced to specifically allow contaminated land relief for Japanese Knotweed and other naturally occurring substances including arsenic, radon and arsenical compounds.

With this change in treatment, it will be interesting to see whether other living organisms that fit within the same broad criteria as Japanese Knotweed will be considered in the future. For example, alien pests such as Zebra Mussels plague UK waterways and have become a significant risk to fisheries and water treatment plants but as yet are not included within the relief.

It is interesting to note that in the Technical Note on Land Remediation Relief published in November 2008 stated that HMRC will accept any open claims in respect of Japanese Knotweed on the revised basis and will approach any new claims for "in-date" years on the same basis. Therefore, it would appear that for any years that are "still open" it may now be possible to make a claim for contaminated land tax relief for Japanese Knotweed which previously was not available.

Going forward, although expenditure on the removal of Japanese Knotweed will be eligible for the relief, this will be subject to some restrictions; for example, where Japanese Knotweed is removed to landfill the relief will not be available.

With the change in HMRC opinion, it will be worthwhile considering whether clients have incurred expenditure on Japanese Knotweed and whether land remediation relief is now available for any current or open prior years.

Michael Hunt
www.bournebc.com

Michael is a senior consultant Bourne Business Consulting LLP. He specialises in asset taxation advising clients in the retail sector, real estate, utility and leisure and hospitality sectors.