Personal Solicitors Ipswich – Rollover and entrepreneur relief

‘ “Can I rollover the gain?” and “Can I get entrepreneur relief?” are the first two questions asked by farmers of their professional advisers on a sale of farming assets.  Dramatic increases in prices of farmland over the past ten years result in big gains being realised on sales.  Without relief up to 28% of the gain will be lost in capital gains tax.  Tax rules require precision with timing and paperwork which can hard to achieve amongst the many other demands of the business.

Rollover relief can eliminate the tax bill entirely if the net proceeds of sale of the old asset are used to buy a new asset for the business.  Timing of the sale and purchase must be correct, and the seller of the old asset and purchaser of the new asset must be the same.  Ownership of land by different family members, family trusts or farming companies can result in a mismatch between the seller of the old asset and the buyer of the new asset.

Entrepreneur relief (ER) reduces the tax on gains realised from a likely 28% down to 10%.  The disadvantage of ER against rollover is that tax at 10% is due. The advantage is that proceeds of sale do not have to be reinvested into the business.  ER reduces tax on gains realised where a business is sold or an owner ceases trading. Where the family are shareholders in trading company and the shares are sold getting relief is reasonably straightforward.  For at least one year immediately before the sale, each shareholder must hold at least 5% of shares and voting rights and must be an officer or employee of the company.

The problem for farmers is that often they trade as sole traders or partnerships.  When they retire or sell up, the land, machinery and stock are sold off progressively and then the business is wound up.  ER is available on the sale of the assets of the business when the business is wound up, but the rules favour ceasing trading and then selling the assets within three years. Problems arise where assets are sold off first and then the business is subsequently wound up.

Because of the need to get things right one year before the sale, it is vital to get professional advice early.  This is like telling you to go to the dentist before you have toothache, but in both cases it can avoid pain and sleepless nights.’

James Skellorn is a personal solicitor at Barker Gotelee, Ipswich Solicitors

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