The government gave the green light, earlier this year, for the multi-billion pound HS2 project to proceed. Farmers and landowners who will be affected, and who haven’t already done so, should prepare for compulsory purchase and engagement in the process for compensation.
Despite the Covid-19 pandemic, construction work on phase 1 (London Euston to West Midlands) officially started in September and the government has committed to phase 2a (Birmingham to Crewe) and phase 2b (connecting the north).
Government compensation measures include:
- The express purchase scheme for property owners in a Safeguarded Area, where properties are purchased at full market value with a 10% ‘home loss’ premium and reasonable costs of sale/removal covered.
- A cash payment for property owners in the Rural Support Zone (60-120 metres of the route) of 10% of the full market value of their home (between a minimum of £30,000 and a maximum of £100,000).
- A voluntary purchase scheme, also available for property owners in the Rural Support Zone, with full market value being paid for the property.
- A cash payment for property owners in a Homeowner Payment Zone (120-300 metres of the route), with payments dependent on distance (decreasing from £22,500 to £7,500).
- A ‘need to sell’ scheme.
- A ‘rent back’ option.
Saffery Champness is advising farmers and landowners that capital gains tax (CGT) rollover relief could be available where proceeds from a compulsory purchase of land are reinvested into other land and buildings. That reinvestment must be made between one year before and three years after the compulsory purchase. The relief is not available where the landowner has already taken steps to make it known that they were prepared to sell, or where the reinvestment is in a dwelling that becomes the main residence of the seller.
Where the relief is claimed, gains are rolled over into the CGT base cost of the replacement property.
It could prove to be difficult for farm businesses to find suitable replacement land or buildings in which to reinvest. Delayed compensation payments can also seriously impact on planning, reinvestment and cash flow, particularly where a forced sale impacts on business operations.
Martyn Dobinson, a partner at Saffery Champness and a member of the firm’s Landed Estates and Rural Business Group, says:
“Many of the owners of these affected businesses will want to carry on without disruption. However, HS2 will unfortunately bring huge disruption for many. In extreme cases, farm holdings could be split in two, with the logistical challenges that will create. As a minimum, there will undoubtedly be noise and disturbance from construction works extending over periods of many years and additional administration.
“Turning back to the tax implications, as well as CGT issues there may also be inheritance tax implications for those affected.
“Whilst agricultural land and buildings, or land and buildings used in a qualifying business, may benefit from relief from inheritance tax, cash compensation payments that aren’t reinvested in other qualifying property, will not.
“Anyone faced with the prospect of disruption, whether through HS2 or other government development or infrastructure projects, should be aware of the government’s Compensation Code, and the associated compensation process. They should also give careful consideration to timing of any agreement for compensation, where there may be tax implications.”
Professional advice is encouraged for those businesses that are faced with the complexities of compulsory purchase.