Get free updates - subscribe to our monthly newsletter Subscribe
A combination of increased land values and changes in Capital Gains Tax (CGT) rules in recent years means that the amount of tax which Scottish farmers face paying on a disposal of land is vastly increased.
CGT is calculated on the difference between sale price and acquisition value. Thus where land was purchased or inherited many years ago it will almost certainly show a large capital gain. By way of example, figures were published recently which show that on average Scottish land has increased by 220% in the last 10 years from £1332 per acre to £4262. Much of the land that comes onto the market will have been owned for more than 10 years and will show even bigger gains.
There are three possible rates of CGT when land is sold:
As the basic rate band for Income Tax is only £31,865 it can be seen that unless Entrepreneurs’ Relief is due, most sales of land will be subject to 28% CGT. Thus if a farmer can ensure that a disposal of land will qualify for Entrepreneurs’ Relief, the amount of tax payable will reduce by almost two thirds.
Not all disposals of business assets qualify for Entrepreneurs’ Relief and in general the sale of a few acres with the farming business continuing on a reduced scale will result in 28% tax being payable. The Entrepreneurs’ Relief legislation is extremely complicated and there are several ways of obtaining a 10% rate of tax. It is therefore essential to take professional advice well ahead of the sale so that it can be structured in such a way as to minimise the tax payable.
Tom Riddet, Partner, Dumfries
If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletterSubscribe
All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.
Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson Accountants, Business & Financial Advisers is a trading style of Armstrong Watson LLP. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities.
Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales No. 8800970. Registered office: 15 Victoria Place, Carlisle, CA1 1EW
Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales No. 7208672. Armstrong Watson Financial Planning & Wealth Management is a trading name of Armstrong Watson Financial Planning Limited. Registered Office: 15 Victoria Place, Carlisle, CA1 1EW