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Paying for Covid: could you be affected by the outcome of the Capital Gains Tax review?

13 October 2020

On the 14th July the ‘Office of Tax Simplification’ (the independent advisor to the government on simplifying the UK tax system set up in 2010 with the objective of offering recommendations to the Chancellor about how to make the UK tax system simpler) launched its Capital Gains Tax (CGT) review.  It will call for evidence, consider the evidence, and make recommendations to the Chancellor.  The review will consider CGT allowances, exemptions and reliefs.

Individuals or businesses who make a chargeable gain when they sell (or give away) an asset e.g. a house or a business asset such as farm land or equipment, pay CGT on this increased value.   There are a range of exemptions and reliefs available that are of particular relevance to farmers including:

  • Principal private residence relief (you avoid paying CGT if you have always occupied the dwelling);
  • Rollover relief (available on qualifying business assets – you avoid paying CGT if you reinvest the proceeds in other qualifying assets).

However in some cases Capital Gains Tax could be payable by a farmer during their lifetime, for example where someone intends to sell the farm or other assets and does not intend to reinvest the proceeds in qualifying business assets.

Currently the rates payable range from 10 – 28% depending on the type of asset and your own income, and there are a number of reliefs available.  However the review being undertaken now will consider both the appropriate rate to be applied in future, and what reliefs should be available.  It is thought that increasing the ‘tax-take’ through CGT will be one way for the Chancellor to balance the books after the unprecedented spending required recently to deal with the pandemic.

Many farmers won’t be impacted by changes to the Capital Gains Tax regime, however for anyone currently considering selling a business asset or residential property in the near future it is recommended that you speak to your accountant as soon as possible.  Your accountant will be up to speed on likely/possible upcoming changes, and whilst it may not be feasible to ‘outrun’ any changes to the CGT rates or reliefs, it’s better to ask the question now!

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