How Capital Gains Tax could be modernised to help British farmers

Capital Gains Tax was introduced in 1965, but after 56 years, it’s clear some things need to change.

As with all elements of tax-paying, the processes and regulations can be overwhelming, especially when there are potential penalties and fines at play.

The agriculture industry faces a particularly large volume of issues when it comes to tax management, with land, assets, and the environment huge factors within the minefield that is Capital Gains.

The Office for Tax Simplification (OTS) published a report; ‘Simplifying practical, technical and administrative issues’ in May, following a wide-ranging consultation. The OTS consulted a large number of organisations and their individuals, representing stakeholders across the rural industry.

The call for evidence demonstrated that current Capital Gains Tax guidelines have huge implications for farming businesses in this modern era. Now more than ever, farmers are maximising diversification opportunities in order to protect the prosperity of their businesses, and livelihoods. However, it is becoming increasingly apparent that taking up these opportunities can jeopardise important Capital Gains Tax or Inheritance Tax Reliefs. Resulting in negative implications for longer-term investments, restructuring, and succession.

Rollover Relief in Compulsory Purchase Situations

In general, owners of ‘let’ land are not normally eligible to claim rollover relief on its sale. Although, special rules allow for a claim in the event of a compulsory purchase order. This should empower landowners (particularly owners of farming land), however, restrictions around these claims are presenting challenges for owners of farming land.

The difficulties are only increased by the landscape of today’s land market. In the UK, the land market is increasingly thin – a problem that seems to be accelerating. This makes land replacement a tough strategy to take. For many farmers, it can be more commercially rational to reinvest in buildings rather than land, following compulsory purchase order. This is then compounded by all the technical problems faced: time limits, provisional claims, willingness to sell.

These issues are expected only to multiply in the coming years. 50,000 compulsory purchase orders are expected between 2017 and 2023, in relation to the first phase of the HS2 Programme alone. A problem that disproportionally effects agricultural land across England. Then there are the compounding environment schemes increasing demand for land further, with wind farm developments and such like.

How could the Capital Gains Tax policies be changed to help British farmers?

The OTS’s report identified that HMRC could assist farmers by improving their guidance on several areas:

• UK Property Tax return
• Lodgers and people working from home
• When Business Asset Disposal Relief could apply to farmers or others looking to retire over a period of time
• Rollover Relief in Compulsory Purchase Situations

All in all, it is clear that the Tax system could be modernized to help farmers to face these increasingly complicated and dynamic issues.

The Country Land and Business Association has set out the ‘Rural Business Unit’ paper which outlines ideas and innovations that could be actioned within the systems to bring it into line with today’s agriculture industry.

In the meantime, over here at Brightshire, we continue to constantly keep on top of the latest guidance, system changes, and policy movements. If you’d like to discuss anything around tax management for your rural business, contact us to discuss this today.