Tax planning options for development land
To best consider your tax planning options, land being put forward for commercial and residential development should be mentioned to your tax advisor at an early stage.
Deferring Capital Gains Tax liabilities - CGT may be payable on the sale of development land, but a CGT deferral relief, which is generally referred to as “rollover relief” may be available where certain business assets are disposed of.
This may be a valuable relief for farming businesses who might be in the process of selling land (in particular development land) and wish to reinvest in additional land, buildings or fixed equipment.
When qualifying business assets are sold and the consideration received is used to acquire a new business asset, rollover relief maybe available.
The usage of the asset sold during its ownership period is considered and where there is a period of time or a part of the asset not used for the appropriate trade purposes of the taxpayer a restriction to the level of relief available is applied.
There are then time conditions applied, whereby the relief is normally available if the replacement asset is purchased within the 12 month period preceding the disposal of the old asset or three years after. HMRC has discretion to extend these periods and if there are therefore any delays, it’s appropriate to speak to your tax advisor with regard to contacting HMRC for an extension.
It is necessary for an election to be made by the taxpayer to HMRC and if approved, the gain and CGT due on the disposal of the old asset may be rolled over, which reduces the cost of the new asset. This may therefore provide a substantial CGT deferral today and only when the new asset is sold, may this tax be payable on the increased gain (subject to any available reliefs at that time).
Value Added Tax - The promotion of land for development purposes may incur substantial costs and VAT for landowners. The recovery of this VAT cost, which may be significant, may however be blocked by HMRC. There are however options available which may mean that the VAT is recoverable.
If you are approached regarding the possibility of your land being developed, it is best practice to speak with your tax advisor, land agent and solicitor at an early stage.
Roy Jackson is Partner in Whittingham Riddell’s specialist Rural Services team.
