You might be entitled to Business Asset Disposal Relief when selling your farm business

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If you are considering selling part or all of your farming business you may be able to pay less Capital Gains Tax (CGT) if you qualify for Business Asset Disposal Relief (BADR). 

BADR, previously known as Entrepreneurs Relief, can reduce the rate of CGT from 20% to 10% on all gains on qualifying assets. It was introduced in 2020, and at the same time the lifetime limit was reduced from £10 million to £1 million. Any previous disposals under both BADR or the former Entrepreneurs Relief count towards this limit. 

Can I claim Business Asset Disposal Relief?

There are several different ways to obtain BADR:

• The sale of all or a distinct part of a business - the sale of some land will not qualify under this category.
• The sale of business assets on cessation of the farming business, or in the three years following cessation.
• The sale of business assets at the same time as a partial retirement from a partnership. This is the most complicated category of BADR, and would require other partners to come into the business.

For example, a farmer wanting to sell 15 acres of their 200-acre farm to a developer should qualify for BADR if they stopped farming and rented out the remaining 185 acres they wanted to keep to a tenant. However, there may be other Inheritance Tax (IHT) consequences from renting out the remaining land. Provided they have owned the land for 7 years, it will continue to qualify for 100% Agricultural Property Relief (APR). APR is restricted to the agricultural value of land, so if any of the retained land has development value in the future, this non-agricultural value will be subject to IHT. Furthermore, once the land is rented out, the farmhouse will no longer qualify for APR, and extra IHT may be payable on death.

The third category of claiming BADR could enable this farming business to continue, which would improve the farmer’s Inheritance Tax position on death. If it was their intention is to leave the remaining land to their children, then making them a partner in the business now could make sense.

As you can see, claims to BADR are particularly complex, and given the amount of tax at stake, it is important to seek specialist advice when selling part or all of your business.