Business Clinic: Can CGT exemption be claimed on barns?

Whether you have a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help.

Andy Ritchie, head of agriculture, Azets, clarifies the rules surrounding CGT exemption for land and buildings surrounding a home.

Q. I have a general enquiry regarding a potential Capital Gains Tax (CGT) liability on a development opportunity.

I own a small farm (34ha) with a farmhouse in the middle and surrounded by six barns of various shapes and sizes. All barns have been used for light industrial purposes for more than 10 years and are currently still so used.

We have recently been granted full planning permission to convert the barns into up to 12 residential dwellings (subject to final details).

I understand that I am exempt from CGT on up to 0.5ha and take this to mean that I can choose which 0.5ha I nominate to be subject to this exemption.

My question is, must I claim this allowance or exemption on a single plot of up to 0.5ha containing some of the barns, or can I claim it on several areas which I sell for development so that in total these make up less than 0.5ha?

A. When a private residence is sold, the house and gardens can be exempt from CGT.  The rules surrounding this area are complex, but in the situation described the exemption would not apply to any of the barns.

Garden and grounds not exceeding 0.5ha can qualify. Even if your garden and grounds exceed that figure they can still qualify, depending on the setting. 

The garden or grounds can include buildings standing on that land, so a building such as stables or a garage that isn’t part of your dwelling house can still qualify for relief in certain circumstances. 

See also: Business Clinic – can my farm be sold tax free after inheritance?

The garden or grounds will include any enclosed land surrounding or attached to your dwelling house and serving chiefly for ornament or recreation. 

However, not all land you hold with your dwelling house is treated as the garden or grounds of that residence.

You are not entitled to relief for land let or used for a business. In this case it appears the industrial buildings are let as a business. Had the buildings been used for private purposes, say to keep garden equipment, at the time of disposal they may have qualified for relief. 

In this case an aerial photo was supplied and it is clear the buildings are not part of the grounds, garden or curtilage of the house, so regardless of use they would not qualify.

It is not relevant to this case, but worth highlighting, that land which at the date of disposal has been fenced or divided off from your garden for development, or has been developed or is in the course of development (for example, excavations under way for foundations, roads, services, and so on) would not qualify.

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