Proposed capital gains tax changes to 'significantly impact' farm sales

Rural property consultancy GSC Grays has warned that the proposed changes could have a major impact on farm sales
Rural property consultancy GSC Grays has warned that the proposed changes could have a major impact on farm sales

Proposed capital gains tax (CGT) changes could have a 'significant impact' on the sale of farms and farmland, according to rural property experts.

The CGT allowances are currently set at £12,300 which means no tax is paid on the first £12,300 of gain made on the disposal of an asset.

Chancellor Jeremy Hunt has already indicated that this will be reduced to £6,000 in April 2023 and further reduced to £3,000 in April 2024.

Rural property consultancy GSC Grays has warned that the proposed changes could have a major impact on farm sales.

“It is a fair assumption that the Treasury will be going after additional revenue through increasing CGT," said John Coleman, head of farm agency.

He said these changes may inadvertently impact the price achieved for farmland if rollover rules were not similarly amended.

This would give a buyer, with funds to rollover, significantly greater buying power if the prime motivation was to reduce their tax bill.

Ahead of potential changes, farmers have been urged to start preparing for higher rates of CGT.

To achieve the optimum sale price, GSC Grays said farms were typically best marketed in the late spring or summer when the land was most accessible and "everything looks at its best".

Assuming an open market sale, the process from engaging an agent, marketing the property, agreeing a sale and completing the legal contracts, could take "six to nine months".

Mr Coleman said: “For those that want to make the most of the current favourable rates our advice is to start preparing now before higher rates of CGT significantly impact returns from any disposal.

“Currently funds raised from the sale of a business asset can be rolled over into the purchase of another business asset, deferring a CGT payment until the next sale.

"This will potentially give those who have money to rollover 50% more buying power than a bidder without rollover and could significantly distort the market."

He added: “There is no sign that this will change in the short term but there is also no guarantee that this will not happen in future."

CGT change examples

GSC Grays has provided examples of changes to CGT:

• The disposal of a block of 100 acres of land bought for £500,000 and sold at £10,000 per acre resulting in a capital gain of £500,000 would incur a CGT bill for a higher rate taxpayer now of: Gain - £500,000 Less - £12,300 Total – (£487,700 x 20%) = £97,540

• If the rate is raised, as Labour have warned, to 50%, the tax liability will increase to: Gain - £500,000 Less - £3,000 Total – (£497,000 x 50%) - £248,500. This is an increase of £150,960 on the same disposal.

• In the same scenario of 100 acres of land with a 1982 value of £1,500 per acre, this would make the capital gain £850,000. At 50% this would incur a bill of £425,000.