Capital Gains Tax For Farm Land

[SouthWest_1984]

Hi Room,

Just new here so would like to say hi. My question is, my grandfather currently owns 20 acres of farm land which he has owned for about 60 years, is this asset liable for CGT? Am I right in saying that a valuation would be taken from 1982 what the land is worth? We believe the land to be worth about 4000 an acre now. My grandfather is still married, if the land is in both there names can each persons personal allowance be used against the value? Is there also any kind of tax relief for this kind of asset?

I look forward to your replies

[nickis]

Yes a sale of farm land will be a disposal for CGT purposes. You are right in saying that the cost used for the purposes of the CGT calculation will be based upon the value of the land at March 1982 so you should obtain a professional valuation to evidence this.

If the land is owned jointly by a husband and wife then they will each be deemed to dispose of their share of the land (so proceeds and cost will be allocated 50% to each individual if they both own the land in equal shares) therefore each individual has an annual exemption (personal allowance for CGT purposes) available to reduce their gains, this is £10,100 for 2009/10 tax year.

Entrepreneurs relief is available to reduce gains (up to a lifetime limit of £1m worth of gains) where there is a disposal of a trading business and that business has been owned by the individual for at least one year prior to disposal.

ER will reduce the gain (proceeds less March 1982 value) by 4/9ths. This will be given before the above mentioned annual exemption.

If a farming business is being carried on from this land and has been so for at least 1 year, then Entrepreneurs relief (ER) should be available to reduce capital gains. This would be providing all of the farmland is disposed and therefore a cessation of the farming trade occurs. (If only part of the farmland is disposed then ER may still be available http://www.hmrc.gov.uk/MANUALS/cg4manual/CG64020.htm)

Whether ER is available to reduce the gains of both your grandfather and his spouse will depend on whether they both carry on the farming business. For example if only your grandfather is carrying on the business, only his share of the gain will qualify for ER. For your grandfathers spouses share of the gain to qualify for ER they would need to be carrying on the business in partnership for at least one year prior to disposal of the business.
I hope this helps

[SouthWest_1984]

Thanks for the reply you have been most helpful. If the land is only in one of their names am I right in saying you can dispose of a percentage of the land to a spouse without paying CGT. If this is the case can the land be sold on after that taking into account both persons personal allowance or is there a time limit on selling the land after accquiring it?

[msp]

For CGT, a transfer between spouses (or civil partners) who are living together is deemed by legislation to be at "no gain/no loss". In practical terms the receiver takes on the giver's allowable costs (base cost plus any enhancement). So any such disposal is free of CGT, and there are no time constraints attached to a subsequent disposal.

If the wife can benefit from ER then the transfer of a half share will produce the best result. But remember that she would need to receive her share of the proceeds to demonstrate that she had truly become a beneficial owner - paying into a joint account would suffice. If the wife cannot get ER then transferring a sufficient %age of the land to accommodate her annual exemption will give the greatest benefit in terms of minimising CGT.

Remember that, for both, ER is available only if the asset was used by each either as an individual or in partnership for sufficient time - i.e. in their business. The ER qualifying conditions are stricter than the taper rules.

[Incredulum]

Current value 80k. March '82 value, what, £1,500?

http://209.85.229.132/search?q=cache:MS4wPe9cSFEJ:www.voa.gov.uk/publications/property_market_report/1982/agri_landviews.shtml+farm+land+1982+value&cd=1&hl=en&ct=clnk&gl=uk

Can you structure the sale over two tax years so they get the benefit of four personal allowances?

[SouthWest_1984]

Thanks for your reply, I dont think the land to be applicable to ER as its not currently being run as a business, as far as im aware the buisness ceased a number of years ago, and he has just kept the land on as a part hobby/renting it out for next to nothing a year, which is declared but not taxed.

So the scneiro at the moment is, my Grandfather owns the land, he will get hit by capital gains tax at 18% of the profit. If he disposes of 50% of the land to my Grandmother, then they sell the land they can take into account both their personal allowances totallyling £20200. Am I also right in saying, any costs incurred in selling the land i.e valuations, selling fees, can be added onto the orginal value to decrease the capital gains amount?
This maybe a different subject all together, but how to you go about disposing of the land, do you contact the solictors to have something drawn up (to change the deeds to both names) or something alot more simple??

I appreicate all your replys

Kind Regards

[SouthWest_1984]

Any feedback for post above?

[SouthWest_1984]

Any feedback for post above?

[Incredulum]

Nothing further to say, you seem to understand it well.

Talk to your solicitor re transfer of the land.

[SouthWest_1984]

Thats great thanks.