Entrepreneurs’ relief was introduced for disposals of assets in a qualifying business on or after April 6, 2008 and is largely based on the old retirement relief provisions and causes the same difficulty for farmers as the old retirement relief did.
Different rules apply to the disposal of the whole or part of a trading business and can make a difference in the rate of Capital Gains Tax payable by 18 per cent (28 per cent as opposed to 10 per cent)
To trade, the farmer must be the occupier of the land that he farms, and he must carry out acts of husbandry on that land. If exclusive occupation of the land to others is granted in the form of a tenancy, he may no longer carry on a trade.
Any gain on the disposal of land occupied or used by others may not qualify for entrepreneurs’ relief.
A farmer rearing livestock for 20 years decides to take life easy and lets his grassland to a neighbour under a farm business tenancy prior to selling the farm and realising a gain of £2 million. The gain is unlikely to qualify for entrepreneurs’ relief, thus increasing the tax bill by £360,000.
A dairy farmer stops milking and sells his dairy herd in September 2012. In the spring of 2012 he sold 30 acres of land on which he normally produces winter feed.
He realises a gain of £300,000 on the sale of the land. The gain will not qualify for entrepreneurs’ relief.
A dairy farmer sells his milking cows, parlour equipment, milk quota and land and stops producing milk. He also sells 25 acres of its 75 acres at the same time and runs a suckler herd on the remaining 50 acres. The gain on the sale of the 25 acres will qualify for entrepreneurs’ relief as the business of producing milk has been disposed of (a material disposal of his business).
A farmer rears lambs on 75 acres. He sells 45 acres but continues to rear lambs on the 30 acres retained, selling through the same markets. The sale of the 45 acres is a scaling-down of operations and not the sale of a business or part of a business since, apart from the reduction in acreage and animal numbers, the business is exactly the same before and after the sale. The farmer will not be entitled to entrepreneurs’ relief.
Planning the disposal of a part or whole of a farming business is extremely important and advice should always be taken prior to any transaction to maximise the relief available and help to mitigate CGT liabilities.
David Morris, senior manager of Whittingham Riddell’s agricultural team