Business Clinic: How to hand on assets and get tax relief?

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

Andrew Robinson, partner and head of agriculture, Armstrong Watson advises on tax reliefs when planning to retire and hand on assets.

See also: Business Clinic – new use for farm building raises VAT questions

Q: I hope you can help me with a tax matter regarding business asset disposal relief (BADR). My brother and I own and contract farm 200 acres.

We recently sold 15 acres to a developer for housing and would like to claim entrepreneurs relief (now BADR I believe) so that we pay capital gains tax at 10% tax as opposed to 20%.

My accountant has informed me that to claim this relief we would have to stop farming (not a problem) and sell the remainder of the land, which we do not wish to do as we plan to eventually hand over the land to our sons and daughters.

I was of the understanding that if we took a tenant for the remainder of the land and we both lived two years after the beginning of the tenancy agreement that the land would be inheritance tax-free ie 100% agricultural property relief.

Which is correct please? It will be of relevance that I am 75 and my brother is 81 years young!

A: You are correct that entrepreneurs relief was renamed business asset disposal relief (BADR) in 2020, and that a claim can reduce the rate of capital gains tax (CGT) from 20% to 10%.

There was another important change introduced in 2020, and this was to reduce the lifetime limit from £10m per individual to £1m.

Any previous disposals on which entrepreneurs relief was claimed will count towards this limit, and it may be that you have already used part or all of your limit.

You do not mention the likely sale proceeds or capital gain on the 15 acres, but if the gain is more than £2m, part of it will be taxed at 20%.

There are several different ways to obtain BADR:

• The sale of all or a distinct part of a business. The sale of 15 acres will not qualify under this category
• The sale of business assets on cessation of the farming business, or in the three years following cessation
• The sale of business assets at the same time as a partial retirement from a partnership. This is the most complicated category of BADR, and would require other partners to come into the business.

Therefore, it is not necessary to sell all of the land to obtain BADR. If you rent out the remaining 185 acres at the same time as selling the 15 acres, you should qualify under the second heading above.

However, there may be other inheritance tax (IHT) consequences from renting out the remaining land. Provided you have owned the land for seven years, it will continue to qualify for 100% agricultural property relief (APR).

APR is restricted to the agricultural value of land, so if any of the retained land has development value in the future, this non-agricultural value will be subject to IHT.

Furthermore, once the land is rented out, your farmhouse will no longer qualify for APR, and so IHT on the farmhouse may be payable on your death.

The third category of claiming BADR could enable your farming business to continue, which will improve your inheritance tax position on death. If your intention is to leave the remaining land to your children, then making them a partner in the business now could make sense.

However, the fact that the land has already been sold may mean this is not now possible, because the partial retirement from the partnership needs to be “associated” with the sale of land.

As you can see, claims to BADR are particularly complex, and given the amount of tax at stake, I suggest you seek specialist advice as a matter of urgency.

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