Agriculture Property Ownership Issues Are A Minefield With Entrepreneurs’ Relief

Paul Munson, Farming Specialist at Cwmbran based Green and Co Accountants, warns that Entrepreneurs’ Relief, brought in to deflect criticism from the business community over the proposed changes to capital gains tax that took effect on 5th April 2008, is not as simple as it appears.

Headlines suggested that lifetime gains of up to £1 Million per person from sales of business assets would only be taxed at 10%. However, the new relief is not as easy to qualify for, and not nearly as generous as the regime that it replaced. A number of pitfalls are now becoming evident, and agriculture, with it’s unique ownership issues, is particularly affected.

Previously in order for capital gains to benefit from lower tax rates for business assets, they needed to have been used by any unlisted business for at least 1 year prior to that asset being sold. Now, to qualify for Entrepreneurs’ Relief an asset has to have been used by the vendors own business for at least a year and either has to be included as a part of the sale of a complete business, or sold within 3 years of that business ceasing to trade. One major implication of this is that land let under a farm business tenancy will not generally be eligible for Entrepreneurs’ Relief.

Another point to consider is that it is usually the date of exchange of contracts that is taken to be the date of sale for tax purposes. It is not uncommon with farm sales for some activity to continue after exchange of contracts, such as harvesting remaining crops or letting grass keep until sales have been completed. There will often be cattle and sheep to be sold.

The finance act has yet to be passed, but as the draft legislation currently stands the business would not have ceased and so the land sold would not qualify for Entrepreneurs’ Relief. Until this position has been tested, prudence suggests that the business needs to have ceased altogether before assets are sold on their own. On a gain of £2million from the sale of a jointly owned farm, the difference in tax might be £160,000.

Where assets are held in joint names such as husband and wife, but the business is in the name of just one person, Entrepreneurs’ Relief will not be available to the person who is not trading.

Previously it was possible to transfer assets to a spouse prior to a sale, and the receiving spouse would take on the tax position of the transferring spouse. This has now changed, and the receiving spouse would need to use the asset in their own business for at least a further year prior to a sale in order to be eligible for Entrepreneurs’ Relief.

It is clear that plans made under the old regime might not be relevant today, and anyone considering a sale in the future should examine their ownership and business structures in the light of the new legislation, and contact their accountant or adviser for assistance.

Green and Co are a three partner practice based in Cwmbran, providing specialised services to the agricultural and landowning sectors. Their comprehensive general business services range from a new business advisory service, acquisitions and disposals, to tax planning, audit and accounting – ring 01633 871122 go to www.greenandco.com