OTS report on CGT offers recommendations to farming and land-based businesses

26 May 2021

farm gate

The latest report from the Office of Tax Simplification (OTS) on Capital Gains Tax (CGT), just published, offers “generally helpful and sensible” recommendations where proposed changes would affect land-based and farming businesses, says Saffery.

This latest OTS report, in response to the Chancellor’s request in July 2020 for a review of CGT, follows their first report published last November, Simplifying By Design, which considered the policy, design and principles underpinning CGT.

This latest document, Simplifying practical, technical and administrative issues, has extensive scope, covering situations including moving home, divorce, running and investing in a business, and issues affecting land transactions. It focuses on CGT for individuals and smaller business, rather than partnerships, trusts, estates in administration, non-UK residence/domicile, international issues or corporate groups. The report makes 14 detailed recommendations.

Martyn Dobinson, Partner, Saffery, and a member of the firm’s Landed Estates and Rural Business Group, says:

“The report identifies limited awareness around CGT and confusion around reporting and payment. One of its key recommendations is that CGT should be included in the digital HMRC Personal Tax Account or Single Customer Account.”

“The OTS has clearly listened to the concerns raised, including those of some of our farming and rural clients, with issues related to land and property used for agriculture receiving special attention.

“Calls for consideration of diversification issues and the impact on CGT and IHT reliefs, where land is moved from trading to investment, for example, get a mention in this latest report. Capital tax relief is highlighted as especially important for the farming sector when it comes to supporting longer term business investment, restructuring and succession.

“The impact of the shift from the Basic Payment to the new Environmental Land Management Scheme, and the potential impact of classification of land use is specifically referred to, as is the CLA’s ‘Rural Business Unit’ paper.

“The commentary and recommendations made are generally helpful and sensible, would streamline the current position and deliver a CGT system that is more workable than at present.”

The report considers extending the current 30-day reporting and payment regime for the UK Property tax return (used for residential property disposals, for example) to a more forgiving 60-days or requiring estate agents and conveyancers to distribute HMRC provided information to their clients to inform them of the requirements.

There are considerations around whether CGT should be paid up front where there are deferred proceeds on the sale of a business or land, whilst retaining any reliefs.

Availability of Business Asset Disposal Relief (BADR – formerly Entrepreneurs’ Relief) is considered, particularly with regards to situations such as that where a farmer sells a business but continues to harvest existing crops after the sale. Strict interpretation of the legislation can lead to loss of this valuable relief where trading continues after a business sale.

Compulsory Purchase Orders are identified as an area where greater flexibility is required in the application of Rollover Relief. There is a suggestion that qualifying reinvestment should be expanded to include, for example, construction, extension or improvement of farm buildings on remaining land (including let land) or diversification into other areas.

Regarding land pooling arrangements for improving development potential, the OTS report proposes ways to allow such arrangements to be more tax neutral.

Martyn Dobinson says:

“It’s good news that as well as recognising specific situations where the current CGT regime disadvantages certain land-based businesses (and where improvements could be made), the OTS report also recognises the bigger picture, the changing subsidy system and the changing face of agriculture in the UK. The report highlights the importance of interaction with the new agricultural policy and how future changes in land use could affect the status of farming businesses and land assets. Joined-up thinking is absolutely crucial as we move forward.”