The Accidental Smallholder Forum
Smallholding => Buildings & planning => Topic started by: BrimwoodFarm on December 06, 2016, 10:11:56 pm
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Hi all,
I was just wondering if anyone know much about Capital Gains Tax for agricultural land.
My parents have 40 acres of farmland, inherited from my farming granddad which was worth about £100,000 at the time of his death. It's now valued at a lot more. They were going to shift the lot across to me as a Christmas gift (nice, right!?) but speaking to their Will solicitor today the aspect of CGT was brought up....that's A LOT of tax to pay.
However, I've been fishing around online and discovered there is such a thing as CGT hold over which allows land that qualifies for inheritance tax agricultural property relief to be free of CGT when passing deeds to a next generation, for example. I wonder....do my parents need to have died for this to be applied though...in regards to the inheritance aspect, I mean?!
It's all SOOOOOO complicated! :-\
I was just wondering if anyone knows anything about this, or maybe have even dealt with such an issue?
Geoff
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You're best asking your solicitor, or your accountant if you have one. Something like this you need to get right or it could turn out rather expensive!
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You're best asking your solicitor, or your accountant if you have one. Something like this you need to get right or it could turn out rather expensive!
You're not wrong!! My parents are going to go to a conveyancer, but I think they might need someone with proper agricultural specialties.
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Definitely need advice from someone who understands the tax system.
Capital Gains Tax would be paid by them if they sell an asset for more than it cost them (and as it was inherited what it was worth at the time they inherited it), however there is an annual allowance (around £11k) that is tax-free. So for example they could sell you an acre (or two) at a time to keep the gain less than the threshold and repeat each year until all sold. You'd pay more in conveyancing though.
Giving gifts is a separate issue and I think the annual limit in value is more around the £3k level per person. More than that and there become different tax implications (to be honest not sure if any excess would be treated as income rather than capital gain).
Inheritance is again something completely different.
The gov.uk pages are generally quite good at explaining things in simple terms, eg:
https://www.gov.uk/capital-gains-tax/overview (https://www.gov.uk/capital-gains-tax/overview)
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You're right [member=147294]Black Sheep[/member] from what I could see about CGT on the .gov website. However, there seem to be some very special rules for farmland in terms of relief....so need to get advice from someone who knows about this niche.
It makes sense thinking about it. Farmers are not rich people, but the value of their land fluctuates like all other assets. If farmers had to pay CGT & inheritance tax for all land passed to the next generation, there'd be no farmers left; no one would be able to afford to keep their land!
Interesting topic. I hope there's an easier way than giving me £11,100 worth of land every year and having to have land revalued EVERY year too. Pain in the A!
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Worth joining NFU and using their specials.
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Wouldn't it be easier if say you rented it off them? so instead of inheriting it now you could have a lifetime worth of rent, then it would be passed down to you and then you would be the owner when the current owners are deceased (sorry to sound morbid here). Just a thought :thinking:
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Wouldn't it be easier if say you rented it off them? so instead of inheriting it now you could have a lifetime worth of rent, then it would be passed down to you and then you would be the owner when the current owners are deceased (sorry to sound morbid here). Just a thought :thinking:
Sure would be....the one complication is that I want to apply for planning permission to convert the only building onsite into a residence so we can actually work the land. For that I need at least that bit of land in my name because the land value will change vastly if/when PP is granted.
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When you have a livestock problem ask a livestock farmer or Vet. When you have a CGT problem ask an inheritance/ tax specialist. Useful to gather experience to make sure your questions to the professional is right (which is no doubt exactly what you are doing) but you need a solid plan for this. I recently went through the CGT hurdle with a cottage my parents owned like you I wanted to invest in it and also take the responsibility of it off them (as it had become a burden rather than a pleasure) so we took the CGT hit rather than wait on the inevitable. I understand why the tax works as it does but it is very tough that those in decline can't easily pass over responsibility I think in your case as it is a business the situation is different so important to get sound advice. By doing so, at least I know there was no better option. Hopefully the government is using my tax £ wisely!
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Sure would be....the one complication is that I want to apply for planning permission to convert the only building onsite into a residence so we can actually work the land.
In that case, be sure to take advice on how to apportion the land between the farm bit and the residential bit. Getting that correct now will save money and hassle in future.
I think in your case as it is a business...
Is it? Perhaps it should be, and maybe that's one way around the problem? One for the experts I think! :thumbsup:
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Sure would be....the one complication is that I want to apply for planning permission to convert the only building onsite into a residence so we can actually work the land.
In that case, be sure to take advice on how to apportion the land between the farm bit and the residential bit. Getting that correct now will save money and hassle in future.
Tell me about it. This is why'd I prefer all the land, rather than a portion. I worry if I was to apply for planning on the portion, they'd turn around and say 'well, you don't own the rest of the farmland so how can you expect to run this smallholding with only small strip of land around the residence in your name?'.
Having it all in my name would certainly make this easier....that is, if there's isn't tens of thousands in CGT!
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Remember more generous inheritance rules kick in in April 2017
I was given 6 acres of land as a deed of gift 5 yrs ago.I was trying to make my fathers smallholding worth less.It was valued at the time at 24000....but of course it would make my fathers smallholding worth a
lot more than that.It was next to my house and land .Always worried if HMRC would challenge this when he died.He's 96 now but I think we're small fish now .I have power of attorney which helps.Of course all drawn up by solicitors and it was expensive.
The generous rules for farmers and inheritance tax don't apply to smallholdings I have now 12 acres.
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Tell me about it. This is why'd I prefer all the land, rather than a portion.
Yes, I think you're right there.
I know that when we bought our place, the seller's solicitor wrote to us and said "You have offered £100 for the house and land together. We hereby apportion that as £95 for the house and garden, and £5 for the fields".
I took that to mean that they wanted to say that the house was worth as much as possible, because it was not liable for CGT, whilst the land would be worth as little as possible because it was liable.
Does that help?
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Remember more generous inheritance rules kick in in April 2017
I was given 6 acres of land as a deed of gift 5 yrs ago.I was trying to make my fathers smallholding worth less.It was valued at the time at 24000....but of course it would make my fathers smallholding worth a
lot more than that.It was next to my house and land .Always worried if HMRC would challenge this when he died.He's 96 now but I think we're small fish now .I have power of attorney which helps.Of course all drawn up by solicitors and it was expensive.
The generous rules for farmers and inheritance tax don't apply to smallholdings I have now 12 acres.
How were you able to navigate the CGT on that 6 acres worth £24,000? My dad's solictor is saying that the land value was £100,000 when he inherited it circa 2000 and it's now over £300,000, and that means CGT on the £200,000 IF he passes to me as a deed in one lot. This is a will writer though, and not someone who knows conveyancing stuff.
Do you know the threshold of land between a smallholding and a farmer? Or is it determined by some other description?
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Tell me about it. This is why'd I prefer all the land, rather than a portion.
Yes, I think you're right there.
I know that when we bought our place, the seller's solicitor wrote to us and said "You have offered £100 for the house and land together. We hereby apportion that as £95 for the house and garden, and £5 for the fields".
I took that to mean that they wanted to say that the house was worth as much as possible, because it was not liable for CGT, whilst the land would be worth as little as possible because it was liable.
Does that help?
Yes, certainly any home you LIVE in isn't subject to CGT. Problem is...there is no house! Ahhh, my naivety of thinking it could just be given over!
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Gift holdover relief for CGT applies to 'business assets' (ie the land would have to be used by your father in his business). You really need to get proper advice from a solicitor (preferably one who is a member of the Society of Trust and Estate Practitioners 'STEP') as to whether this relief may apply in your case. The effect of claiming holdover relief is that there is no immediate charge to CGT, but your father's gain on the land is passed to you. So when you eventually sell the land, your gain is calculated by reference to the value of the land at the date your father acquired it. If you keep the land until you die, the gain is wiped out.
For inheritance tax, there are two possible reliefs - agricultural property relief and business property relief. These reliefs apply to lifetime gifts as well as on death.
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replying to Brimwood Farm......
The solicitor drew up the deed of gift 5 years ago and at that stage I had to get it valued by an estate agent.The estate agent valued the land at £24.000. At that stage there was no capital gains tax as no money exchanged hands.I had considered buying the land but my fathers estate would have been swollen by £24.000 and as he was on the inheritance tax borderline didn't want to do that.
Of course if he dies before 7 years you take a hit....but after 4yrs it does taper off.
He's still marginally in the inheritance tax band now...but hopefully if he lives till next April...we will be out of the woods.
It's an interesting question about when the Inland Revenue become interested...perhaps they look on google and become suspicious of upmarket grand houses that call themselves a farm. But there is a where you need to speak to an expert on inheritance tax planning.
I went to one of those financial roadshows once and the financial expert reckoned that Inland Revenue wouldn't bother to investigate an estate if it was worth less than a million pounds.
I will be looking to transfer the land by deed of gift to my own children at some stage...but won't leave like my father (hes 96) too late.
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replying to Brimwood Farm......
The solicitor drew up the deed of gift 5 years ago and at that stage I had to get it valued by an estate agent.The estate agent valued the land at £24.000. At that stage there was no capital gains tax as no money exchanged hands.I had considered buying the land but my fathers estate would have been swollen by £24.000 and as he was on the inheritance tax borderline didn't want to do that.
Of course if he dies before 7 years you take a hit....but after 4yrs it does taper off.
He's still marginally in the inheritance tax band now...but hopefully if he lives till next April...we will be out of the woods.
It's an interesting question about when the Inland Revenue become interested...perhaps they look on google and become suspicious of upmarket grand houses that call themselves a farm. But there is a where you need to speak to an expert on inheritance tax planning.
I went to one of those financial roadshows once and the financial expert reckoned that Inland Revenue wouldn't bother to investigate an estate if it was worth less than a million pounds.
I will be looking to transfer the land by deed of gift to my own children at some stage...but won't leave like my father (hes 96) too late.
Now that's very interesting...thanks for replying. I'm in a similar position in that I'm not buying the land; my parents want to gift me the land. They are not, therefore, making any profit on it in terms of actual physical money. Perhaps my folks can deed of gift me the land after all? Though on the .gov website it does suggest that a gift to anyone other than a spouse is subject to CGT.
I'm actually looking forward to see what an expert says about all of this so I can feed back!
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'one off' gifts to family - escape tax - as far as i am aware, as long as it not specifically setup to avoid tax.
also if its working land as in 'a farm' that will be worked again - has no cgt
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'one off' gifts to family - escape tax - as far as i am aware, as long as it not specifically setup to avoid tax.
also if its working land as in 'a farm' that will be worked again - has no cgt
Thanks bazzais, I hope you're right! My folks are going to see someone in the know sometime over the coming months, so I hope it can get sorted out properly.