Plan ahead to maximise tax benefits
Upbeat prices for arable land underline the value of forward planning to maximise tax benefits from farm business sales, says an agricultural specialist at the UK200Group of independent accountancy and lawyer firms.
With grain prices remaining high, and expected to remain that way for some time, the profitability of arable farming is making good quality land a hot property, with sales in excess of £6,000 per acre and reports of small lots exceeding £10,000 per acre at auction.
Land supply is limited and farmers anxious to increase their holding are also competing with players attracted by tax breaks and the more competitive returns, which suggests the trend in 2011 likely to be upward.
Paul Short, a Partner at Braintree-based Lambert Chapman LLP Chartered Accountants and Tax Advisers, says farmers who are thinking about selling in the future need to make sure that their farm business is structured in a way that means they can enjoy the full benefits of entrepreneurs’ relief if they want to take advantage of higher land prices.
Entrepreneurs’ relief reduces the capital gains tax rate (CGT) on the sale of eligible businesses and business assets to 10%, rather than 28% as CGT is at present, on a lifetime limit of £5 million per individual.
Paul says: "Although entrepreneurs’ relief offers significant tax savings, it is not always straightforward for farmers to obtain. Because it applies to the disposal of the whole or part of a business, the sale of a couple of fields would not qualify while selling a dairy operation within a mixed farm, or the retirement sale of a whole farm, almost certainly would.
"If a farmer does want to take advantage of the relief, it requires careful forward planning and structuring, not least because the business to be sold must have been operating for at least a year before the sale and have met certain conditions in the year ending with the sale. Splitting the ownership between a husband and wife, for example, would also allow each of them to benefit from entrepreneurs’ relief, effectively raising the gain on which it can be claimed to £10 million. This could be very useful if the land carried development value.
"Land prices are likely to remain high while crop prices do although the latter could fall equally quickly. However, whatever happens to prices, it makes sense to do the groundwork now and structure the business in the most tax-efficient way, ready to take advantage of any future opportunities to sell."
