Advice on selling farm dwellings before capital gains tax rule change

Capital gains tax (CGT) rules on residential property are being tightened from April 2020, so farmers and landowners may want to try to complete any planned sales before this deadline, say advisers.

The main change is that CGT will be payable far sooner than under the current rules.

From April next year, if any CGT is due, a CGT return must be submitted to HMRC estimating the amount and then payment must be made within 30 days of completion of the sale.   

Under the current regime, CGT must be declared on an individual’s self-assessment tax return submitted by 31 January each year for the tax year to the previous 5 April.

This effectively allows up to 21 months for payment of the CGT in some cases.

Under the new regime, if the actual tax due differs from the estimate in the early CGT return, then the balance will be due or refunded following submission of the annual tax return.

See also: How does tax averaging work for farmers

“There may be strong arguments to achieve a sale before April 2020,” says Hampshire accountant Julie Butler of Butler & Co.

“Triggers could include where a farm has too much income from letting, so that it falls foul of the Balfour tests for business property relief from inheritance tax.

“It is also worth considering that land could be attached to cottage or other residential accommodation sales so that the buyer can take advantage of mixed-use rates for stamp duty land tax.”

This effectively lowers their stamp duty tax bill compared with that for a straightforward residential property with no land.

A third reason to consider sales is that of putting the farm on a more sure financial footing in advance of anticipated changes in support when the UK leaves the EU, says Ms Butler.

Residential sales – CGT from 6 April 2020

  • If a dwelling is a person’s main or only residence, it can be sold or given free of any CGT liability by claiming principal private residence relief (PPR) – this is also currently the case.
  • In other cases, any CGT due must be estimated, a return filed and tax paid within 30 days of completion.
  • Where a property has at some point been the owner’s only or main home but may subsequently have been shared or let, the final 18 months of ownership currently qualifies for PPR, whether or not the owner lives in the property during this time. This exemption is being reduced to nine months.
  • There are also rules allowing a three-year period of exemption for disposals by owners who are disabled or in a care home – this will continue.
  • Lettings relief is a further relief from CGT, which currently offers £40,000 of relief on properties that have at some time been a person’s PPR. From 6 April 2020, it will only be available where the owner shares the dwelling with a tenant.
  • Where a person is required to live in accommodation provided by their employer, gains made in a property they would otherwise be occupying as their main residence are fee from CGT – this will continue.

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