Two cheers for capital gains tax

By James Skellorn

The Budget brought two bits of good news on capital gains tax (CGT) for farmers. The first is that from 6th April this year CGT rates are reduced from 28% and 18% to 20% and 10%. The second is that the problem with entrepreneur relief, which the 2015 Budget created, has been corrected. The 10% CGT rate is charged to the extent you have unused basic rate income tax band available in the year you realise the gain. The 20% rate is payable to the extent the gain exceeds your basic rate income tax band, or if you are a higher rate taxpayer.

With indexation allowance and taper relief having ceased some years ago, CGT has returned to being a tax on inflation. Sales of assets which have been held for many years are hit hardest by this.

Note that the lower CGT rates do not apply to houses and flats. A house which is your principal residence is exempt, but second houses, cottages let shorthold, etc. will suffer the 28% and 18% rates of tax. Shares, commercial property and agricultural property will benefit from the lower rates.

Normally the first relief farmers consider on the sale of farmland or buildings is rollover relief, and then entrepreneur relief (ER). A common problem for farmers in getting ER is that farmers tend to be sole traders or partnerships, and need the relief when they sell land and buildings. Because land and buildings are ‘assets used in the business’ and not an identifiable part of the business, entrepreneur relief through ‘associated disposal’ is particularly important, as it gives relief on disposal of assets used in the business. The issue that the 2015 Budget created for ER was that the form of ER called ‘associated disposal’ (where the taxpayer sells an asset used in the business and at the same time reduces their share of the business by transferring part of it to another member of the family) was outlawed unintentionally by provisions that were put into the 2015 Budget. This error has been recognised and corrected with retrospective effect, thus reopening the possibility of ER through ‘associated disposal’, which is particularly helpful for farmers and those who trade in business with members of their family. Frustrating for those who realised gains last year and could not use the ‘associated disposal’ relief, but good to have this relief reinstated.

This article first appeared in County Life, 23rd April 2016.

James Skellorn is Senior Partner and Head of the Private Client team at Barker Gotelee, Suffolk solicitors

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