Shropshire Farming Talk: Capital gains tax, the big bad wolf

That’s the rumour anyway. How worried should Shropshire’s farmers be?

Capital Gains Tax (CGT) has been around since 1965.

Before then capital gains escaped tax scot-free, so CGT was introduced to level the difference.

Since that time CGT has been one of the least stable of our taxes.

Estate Duty become Capital Transfer Tax and Capital Transfer Tax become Inheritance Tax, but the differences between the last two were minimal.

CGT has never changed its name but it has been a real shape-shifter of a tax.

The basic idea is that you sell an asset and pay the tax on the gain. Asset values were originally set at their 1965 levels for property already owned then.

That was later moved on to 1982. An Indexation Allowance to make up for the effects of inflation came, and then went.

Nigel Lawson aligned CGT rates with Income Tax rates in the late 1980’s, but other than that interlude CGT has had its own separate rates.

Retirement Relief came and went. Entrepreneurs’ Relief took its place and that has now become Business Asset Disposal Relief (BADR).

Some assets have always been exempt from CGT: your principal home and wasting assets.

Wasting assets include livestock and farm machinery. Tenant farmers don’t therefore have much to worry about with CGT.

There is an annual exemption but the previous government set that at a record low of £3,000.

It has always been possible to roll over the gain from one business asset into a new one: Rollover Relief.

What can be done to avoid or minimise CGT? Don’t sell the farm or give it away! No disposal; no tax! Disposals include gifts.

The scaremongers are focussing on higher rates of CGT. Historically current rates of CGT are not very high anyway and have never been as high as when Nigel Lawson aligned CGT with Income Tax rates. Should you join the rush to put property on the market before the autumn budget?

Likely to be futile as CGT is captured at the date you exchange contracts, not when you first offer property for sale.

Hold fire if you can. Take care if you are losing some land to compulsory purchase or have an option agreement to sell land for development.

Both situations may leave you facing a CGT liability at a time not of your choosing.

by Charles Cowap, Chartered Surveyor, Chartered Environmentalist and Training Specialist