With the government’s ambitious housebuilding targets in place, it can be very tempting for farmers to sell off pockets of land for development at a premium price.
But the uplift from agricultural land values to development land is steep, meaning those who do succumb to this temptation could be facing a large capital gains tax burden.
So, how can farmers manage the sale of land for development in the most tax efficient way possible? Is there anything that can be done to reduce the tax bill?
One possible solution might be rollover relief, which could reduce the tax burden significantly, or even remove it altogether.
What is rollover relief?
Rollover relief allows a business or individual to defer the capital gains tax on the disposal of an asset where the proceeds of that disposal are reinvested into a new business asset.
This is achieved by deducting the chargeable gain from the cost of the new asset and it can apply where funds are fully or partially invested.
The assets do not have to be of the same type but to qualify, they must only be used for the sake of business. Rollover relief can be applied to a building or part of a building occupied and used for the purposes of trade, land occupied and used for the purposes of trade, and fixed plant and machinery which does not form part of a building.
There are also certain circumstances when it applies to wasting assets and furnished holiday lets.
Benefits for farmers
Whitley Stimpson director and tax expert, Ian Parker, said rollover relief can help farmers manage capital gains tax efficiently if used correctly.
“If farmers are looking to dispose of land for development, then they really need to consider the capital gains implications of that. Rollover relief could be a useful tool to enable them to dispose of the land in a tax efficient way. By investing the income from the disposal in another business asset, such as another plot of agricultural land or farm buildings, they can significantly reduce or remove that capital gains burden.”
To qualify for rollover relief, the new asset must be purchased a maximum of 12 months before the disposal of the old asset or up to three years after, although we may be able to apply for an extension to this period in certain circumstances.
The new asset must also be brought into use in the trade as soon as it is acquired.
Ian added that any farmers or rural business owners considering selling land for development should take advice on the best way to move forward.
“Our specialist tax advisors are on hand to help you negotiate the tax landscape as efficiently as possible and would be delighted to hear from you,” he said.
To discuss rollover relief or tax planning generally, call (01295) 270200 or email firstname.lastname@example.org.