APR and CGT

[Ysgythan]

Ever since then Chancellor John Major put APR up in the early 90s the accepted wisdom amongst rural tax advisers is to take full advantage by dying in harness.

There are exceptions of course, non tax considerations, companies, diversified businesses etc. and the Revenue have been whittling away at what gets APR ever since.

Recently Entrepreneurs' relief on CGT and a reduction in rates of CGT has meant if you're of retirement age you could cash in for a 10% tax on chargeable gains of qualifying assets, subject to reliefs.

This is not meant to be a Brexit thread, but is it time for accountants, solicitors and financial advisers to wake up to a triple threat to land values?

• Unknown basis of support post 2020
• Potential for heavy tariffs on agricultural produce especially if no deal can be struck with the EU, and the US "Free" trade deal involves all the freedom being for them
• A strengthening £ or at least a £ who's strength is unrelated to agricultural performance

Should you decide to update the advice you've had, what would you do if told that the safe bet is to sell up and pay 10% on say £2mill now rather than avoid 40% on say £1mill if you died at an unfortunate time (in tax terms)?

 

[chaffcutter]

First difference being that in the second instance it won't be you that's paying it........

 

[Ysgythan]

Which can't be underestimated as a motivator, but neither can wishing to protect your kids from losses, be that tax or otherwise.

 

[neilo]

When land price is discussed on here, and elsewhere, the general consensus is that it can only keep going up. They're not making any more of it you know..... Anyone that suggests otherwise is normally shouted down fairly rapidly.

IF it does fall significantly, the banks will start pulling rugs like it's going out of fashion.

 

[Ysgythan]

IF that happens it will by then be too late to cut and run of course. I'd imagine a few accountants should be checking their PII policies if they've told farmers to sit tight and don't now mention the "other factors" in play...

 

[alex04w]

There is a missing bit in your calculations.

If I am getting it right in your scenario the land presently has a value of £2m and will fall to £1m by the time of death.

So your supposition is that it is better to sell now and pay 10% and be left with £1.8m. Rather than wait till death and get £1m tax free using APR. So by your supposition you are £0.8m better off selling now.

However, you leave out IHT on the cash generated by the sale.

Sell now for £2m and pay 10% CGT leaving you with £1.8m. Then drop dead and your heirs have to pay 40% on the £1.8m as you cannot claim APR on cash in the bank. So your heirs pay £0.72m in IHT leaving them with £1.08m.

Net gain is only £80,000. If the land does not collapse in value as Remainers suggest, then the best option is not to sell now.

 

[Ysgythan]

There is a missing bit in your calculations.

If I am getting it right in your scenario the land presently has a value of £2m and will fall to £1m by the time of death.

So your supposition is that it is better to sell now and pay 10% and be left with £1.8m. Rather than wait till death and get £1m tax free using APR. So by your supposition you are £0.8m better off selling now.

However, you leave out IHT on the cash generated by the sale.

Sell now for £2m and pay 10% CGT leaving you with £1.8m. Then drop dead and your heirs have to pay 40% on the £1.8m as you cannot claim APR on cash in the bank. So your heirs pay £0.72m in IHT leaving them with £1.08m.

Net gain is only £80,000. If the land does not collapse in value as Remainers suggest, then the best option is not to sell now.

Except that £1.8mill is a nice figure to invest in inheritance tax efficient products/assets.

OK, there's an argument that you could just rent the farm out and claim 50% APR without the hassle of jumping through hoops, but how many farmers can get the bank to let them just retire and buy a house?

There's no suggestion that land value is bound to drop, but in 6 months the landscape has changed. If we refuse to even consider a drop we may do ourselves a disservice.

 

[whatnow]

Ever since then Chancellor John Major put APR up in the early 90s the accepted wisdom amongst rural tax advisers is to take full advantage by dying in harness.

There are exceptions of course, non tax considerations, companies, diversified businesses etc. and the Revenue have been whittling away at what gets APR ever since.

Recently Entrepreneurs' relief on CGT and a reduction in rates of CGT has meant if you're of retirement age you could cash in for a 10% tax on chargeable gains of qualifying assets, subject to reliefs.


Entrepreneurs Relief comes with its own risks though doesn't I Think? Or have I misunderstood?

 

[chipchap]

When land price is discussed on here, and elsewhere, the general consensus is that it can only keep going up. They're not making any more of it you know..... Anyone that suggests otherwise is normally shouted down fairly rapidly.

IF it does fall significantly, the banks will start pulling rugs like it's going out of fashion.

........and that, in my opinion, is a very possible scenario.
The wise men have perhaps avoided farmland for the last few years?

 

[solo]

I thought business property relief was more widely used nowadays instead of agricultural property relief.

 

[Ysgythan]

I thought business property relief was more widely used nowadays instead of agricultural property relief.

The trading assets rules on BPR are tighter than with APR and you need a controlling interest if it's a company to claim it.

 

[Ysgythan]

http://www.thescottishfarmer.co.uk/news/15039471.Sheep_need_the_Single_Market/