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Agricultural Development and Capital Gains Tax

 



Recently, we've been asked for advice on several local land sales.  Professional planning advice is vital when farms or development land are sold, and it’s crucial that the advice continues throughout the process as the deal progresses or changes direction.


Farm sales can generally achieve a Capital Gains Tax (CGT) rate of 10% with entrepreneur's relief, as long as the whole, or a distinct part, of the farm’s trade is being sold. One important criteria is that a trade must have been in operation for at least 12 months prior to the sale taking place. Land which is held outside of a partnership or company but is used for agricultural purposes can also receive the lower tax rate. This is known as an ‘associated disposal’. 


Furthermore, if land is being sold for development purposes, it is important that a separate trade, different from the main farming or agricultural business, is operated on the land which is being sold. This is an important qualifying criteria to achieve entrepreneur’s relief. The land must have been used to generate a trading income and not used as a rental source of investment income. Prior to selling, the landowner must have an active interest in the land and the paramount right of occupancy over the land.


VAT issues also need to be addressed prior to both farm and land sales with all valid options to tax in place. Once the sale is completed and all proceeds have been received it’s then time to revisit your potential exposure to inheritance tax.


As you can see, this can be a complicated area to navigate. For expert advice and an informal chat please contact Lindsay.Beeston@affordbond.com