24 March 2000

Capital gains tax

IN a bid to promote investment in small businesses, the Chancellor increased the reliefs on capital gains tax, as announced in November.

From April this year, an effective rate of 10% tax will be payable after just four years of ownership from Apr 7, 1998, rather than the original 10 years. Slightly better than last autumns proposal, which had suggested a five-year taper. This is good news if farmers are able to sell amenity or development land, or are selling milk quota at a gain.

But for lower levels of capital gain it may still be worth triggering retirement relief, which is due to be phased out in 2003.

For some farmers there may be considerable advantages from taking this route. For example, for a capital gain of £200,000 arising on a business asset qualifying for retirement relief over the next few years, there should be a substantial saving in accelerating the disposal in 2000/01. This is because the tax liability will have more than doubled when only taper relief is available in 2003/04.

Clearly, for different levels of capital gain, it may be beneficial to defer disposal to take advantage of the escalation of taper relief.