ER- Emergency for The Farming Community
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The introduction of Entrepreneurs’ Relief (ER) for Capital Gains Tax does
send out alarm signals to the farming community and action that must be taken
with regard to both succession planning and the disposal of parcels of farmland
A cynical person might argue that the current heading for development land
projects is “agricultural land prices soar and the tax reliefs plummet”.
The Material Disposal
ER is available where there has been a “qualifying business disposal”, which
occurs where there is a material disposal of business assets.
The material disposal, i.e. the disposal of the whole or part of a business
reintroduces a subject matter frequently litigated upon under the old retirement
relief rules. HM Revenue & Customs (HMRC) have indicated that they will apply
the same retirement relief principles to ER with regard to material disposals.
Consideration of the old retirement relief case law will be required and many of
these cases were concerned with sales of land from farms where the issue of what
constitutes the disposal part of a business as opposed to the disposal of assets
used in a business were frequently targeted. The key here is assets used might
not qualify (the mere asset) as opposed to part of a business which will
qualify. HMRC have also indicated that their retirement relief guidance which
can be found in their CGT manual will continue to be appropriate on this issue
for ER (CGT63530 onwards).
Not a Mere Asset
The main cases that can be referred to for the identification of the mere
asset concept are McGregor v Adcock  STC 206 – the sale of 4.8 acres out
of 35 acres; Mannion v Johnston and Atkinson v Dancer, considered jointly at
 STC 758 – the first concerning a sale of 17 acres followed by 18 acres
out of 78 acres, the second concerning sale of 22 acres plus 67 acres of
leasehold land; Jarman v Rawlings  STC 1005, where a dairy business was
sold in stages, Wase v Bourke  STC 18 where a dairy herd and milk quota
were sold separately; Barrett v Powell  STC 283 which concerned the
surrender of a 132 acres tenancy; Purves v Harrison  STC 267 which
concerned the sale of premises which were used to carry on the original business
under a new licence.
Clearly the tax point under consideration is: will the proposed disposal or
transfer be properly described as a business or interest in a business but
merely of assets, e.g. land used in a business. Dymond’s Capital Taxes at
paragraph 24.710 looks at the transfer of mere individual assets used in the
Increased utilisation of other CGT reliefs
It would appear that the potential and future gains on development land might
push taxpayers and tax planning towards increased use of rollover relief and
Using the farming family’s ER – a driver for succession planning
The question of succession planning is always a subject of debate in farming
families – or to be correct the subject is often discussed at length by some
members of the family and totally ignored by others and everything is often
sorted out at the probate stage.
If there is a disposal of a significant part of the farm (not mere asset
rules) anticipated, the utilisation of future ER amongst family members would
prove the driver to involve more members of the family already trading but
possibly not involved in the ownership of the business, i.e. ER is £1m relief on
gains per person and there could be planning advantages of using multiples of
the £1m relief. With land prices at an apparent all time high – consideration
must be given to the tax planning in the round, i.e. the interaction of rollover
relief and holdover relief with the various restrictions and conditions.
All gifts to family members are a transfer for Inheritance Tax (IHT)
purposes. The IHT position must also be considered. Full focus must be
considered as to the interspouse transfer, the hold–over election with
utilisation of the ER now on such transfers. Who said the 2008 budget was dull?
The choices are now more complex than under the business asset taper relief
Let Commercial property does not qualify for ER
Let commercial property does not qualify for ER which includes FBTs with the
exception of furnished holiday lets which do qualify as an effective “trade”.
It is likely that rollover relief and the punishing conditions as to total
proceeds reinvested to achieve maximum relief and the disadvantages if less than
the full amount is reinvested will be a greater consideration post 6 April 2008.
The tax advisor can look forward to complex compliance and planning calculations
concerning the interaction of rollover relief, ER and other CGT reliefs.
CGT reform “revolution”
There has been quite a ”revolution” amongst the farming community about the
CGT reform with many arguing that if the “tainted taper” calculation is carried
out correctly the differential between 10% and 18% CGT rate is not so great.
However, others are furious because the effective 10% is lost with the loss of
business asset taper relief (BATR). Perhaps the fury should be directed towards
reform of the rollover relief rules to be more lenient on the issue of proceeds
reinvested thus encouraging greater reinvestment in the business community?
About the Author
Article supplied by Julie Butler F.C.A. Butler & Co, Bowland House, West
Street, Alresford, Hampshire, SO24 9AT. Tel: 01962 735544. Email;
Julie Butler F.C.A. is the author of Tax Planning for Farm and Land
Diversification ISBN: 0754517691 (1st edition) and ISBN:
0754522180 (2nd edition) and Equine Tax Planning ISBN:
0406966540. The third edition of Tax Planning For Farm and Land
Diversification is currently being written and will be published shortly.
To order a copy call Tottel Publishing on 01444 416119.
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Article Published/Sorted/Amended on Scopulus 2008-08-04 14:47:17 in Tax Articles