Helping you prosper

Capital Gains Tax reform threatening the future of the family farm

The webinar covered some important issues around capital transfers, increase in CGT rates, and reduction in the annual exempt amount. A failure to consider these issues could be costly or even threatening to the future of the family farm.

Our panellists included UHY Hacker Young Tax expert, Graham Boar and Agricultural specialists Tim Maris and Ed Gedney

During the webinar, our panellists honed in on a few of the recommendations included in the OTS report and what these could mean for rural businesses.

Graham kicked off the session focusing on 'final generation businesses' where the succeeding generation do not wish to  take on the farm. 

“The proposal could mean that there’d be capital gains tax on the farm at the point of sale, regardless of whether that was before death or after. Abolishing BADR (Business Asset Disposal Relief, formerly known as Entrepreneurs’ relief) will mean headline tax rates likely to be payable and the size of the figures involved in farm sales makes thinking about annual exemptions and lower rate bands pretty irrelevant – we’re going to be looking at the highest rates of CGT on these sales.” 

Graham goes on to say, “farmers may well benefit from some form of new retirement relief rate of CGT, the report touting 25% interest in a business, 10 years ownership period and a minimum age requirement, all of which a retiring farmer may well tick off.” 

Moving on to multi-generational businesses where succession to one or more of the children will be seen as the main priority, Graham continues: 

“Those who are planning a succession by future generations have tended to have a coin toss decision to make in recent years. By transferring the farm capital during lifetime they’ve been able to lock in current APR and BPR rates and rules and to avoid triggering any CGT, on trading assets at least, thanks to holdover. The cost of that IHT certainty has been that they lose the benefit of the CGT uplift on death because of the holdover election having been made.

By contrast if they hold on until death they’re hoping to still pay no CGT and to benefit from that CGT uplift on death, but they’re relying on 100% APR and BPR still being available when they die in order to prevent an inheritance tax charge.”

Concluding that, “this group of farmers the proposals in the report really shift the tax goalposts and I think lifetime transfers will start to look much more attractive where the next generation want to carry on the farm business.”

The webinar then moved on to a discussion with Tim, Ed and Graham on lifetime successions, commercial considerations around transferring assets and reducing risk. 

The final recommendation provided by Tim was, “don’t shy away from having open conversations about the future of your farming business. Start thinking about it now and consider strategies for the future so you know where you’re going and you can respond accordingly. We’ve got an opportunity here as it is unlikely there will be any changes between now and the budget in March so that gives a small window to allow families to discuss these matters and consider their options.” 

You can watch the recording of the webinar here.

You can read the recommendations made by the Office of Tax Simplification (OTS) and what it is likely to mean for farming businesses in our summary paper here.

The next step

We are here to help. To find out more about the recommendations made and how they may affect you, please contact our Agriculture specialists, Tim Maris or Ed Gedney on t.maris@uhy-uk.com / e.gedney@uhy-uk.com or call 01480 435525.