How might changes to CGT affect farmers and land owners?

Capital Gains Tax (CGT) is payable on any chargeable gains made on the disposal (or deemed disposal) of capital assets. The Finance Act 2019 came into force on 12 February 2019 and implements changes to the current CGT regime taking effect from 6 April 2020, but what will this mean for farmers and landowners?

Reduction in timescale for paying Capital Gains Tax

From 6 April 2020, any CGT incurred on the disposal of a residential property will have to be paid within 30 days of the date of completion. This is a stark change from the current regime whereby any CGT arising has to be paid by 31 January following the year in which the gain was realised.

Importantly, this new deadline will apply even where no money changes hands, for example if a property is transferred into a trust or gifted to a family member.

Changes to Principal Private Residence Relief

Principal Private Residence Relief (PPRR) is a relief from CGT which is available on the sale of the property you live in. If you have occupied the property you are disposing of throughout your period of ownership as your main residence, there will be no CGT to pay on the disposal, making it a very valuable relief.

One particularly useful aspect of PPRR is that, currently, provided the property has qualified for PPRR at some point during the period of ownership, the last 18 months will always qualify for the relief (unless hold-over relief has previously been claimed). This is the case even where the property is no longer the individual’s only or main residence, and is known as the final period exemption.

This is set to change however, with the final period exemption being reduced from 18 months to only 9 months with effect from April 2020.

Removal of Lettings Relief

Currently, where you sell a residential property which was your main residence at some point during your period of ownership, but you have then rented out, you can claim ‘Letting Relief’ (LR) up to £40,000 on any chargeable gain realised on the sale of the property.

However, from 6 April 2020, this will no longer be the case. Unless the letting of the property occurred whilst the owner was also still living in the property, i.e. the tenant living in the property with the owner, the relief will no longer be available.

Considerations for farmers and landowners

Farmers and landowners may have more than one residential property on their land.For example, they may live in the main farmhouse but have other farm cottages which may house other family members, be rented out, or be occupied by farm workers. If any of the farm cottages were to be sold, PPRR will not be available, as the cottages are not the owner’s principal private residence, and therefore, CGT will be payable on the sale. Even if the owner had previously lived in the cottages to be sold, lettings relief will no longer be available to reduce the amount of CGT payable. Further, in light of the new time frame above, from 6 April 2020, any CGT payable on the disposal will have to be paid within 30 days of the completion of the sale, a much shorter timescale than under the present regime.

Lifetime gifting and transferring of property into a trust are often used as ways of mitigating any Inheritance Tax that will become payable on death. Often, in these circumstances, no money will change hands, but CGT will still be payable, and, under the new regime, this must be paid within 30 days of completion of the gift or transfer. Farmers and landowners contemplating using these methods may want to consider arranging for this to be completed prior to 6 April 2020 when the new regime comes into force, or, alternatively, considering other methods of mitigating Inheritance Tax.

It is important that farmers and landowners are aware of these changes and consider how they may be affected. If you need assistance with tax planning, please contact our specialist Agriculture and Estates team.

I am based in our Colchester office and can be contacted on 01206 217394 or [email protected].