Farming Talk: Capital gains tax exemptions are explained

Most people are aware that on the disposal of a business asset capital gains tax could be due.

Put simply, for individuals tax is payable on the difference between the disposal value and the acquisition value of an asset.

Each person has an annual capital gains tax exemption (which for 2012/13 is £10,600).

Any capital gains in excess of this are then taxed at either 18 per cent (basic rate) or 28 per cent (higher rate) other than when exemptions are available such as Principal Private Residence relief and so on.

For individuals considering the disposal of a business asset, which for farmers is likely to be land or buildings, there are a number of reliefs which may be available to minimise the tax due as follows:

Hold-over relief – Where a farm is being transferred to the next generation there need not be any capital gains tax payable on the transfer as hold-over relief may be available. This transfers the gain to the person to whom the gift is being made.

Entrepreneurs' relief – Where a transfer is made to a third party or hold-over relief is considered inappropriate, then consideration should be given as to whether Entrepreneurial relief can be claimed and if the conditions can be met.

If claimed, the capital gain is taxed at a fixed rate of 10 per cent (each individual has a lifetime limit of £10 million worth of gains).

Where an individual is disposing of his or her assets in a farming business then the initial conditions to be met are:

• The asset must have been owned in the business for at least a year prior to disposal.

• There must be a cessation or material disposal of a business in which the assets were used.

• If the business ceased to trade before the assets were sold then to qualify the assets must be sold within three years of the business cessation.

There are a number of pitfalls people should be aware of when considering making a claim for this entrepreneurs' relief.

However, by being aware of the rules for making such a claim and by considering the position at least a year in advance then this planning will maximise the chances of making a successful claim.

In summary, as with all taxes, by discussing your intentions and your options with your specialist tax advisor at an early stage, any planning which is appropriate can be put into place in order to maximise the relief being claimed.

Andrew Rawlings, Whittingham Riddell LLP, Shrewsbury