Business Clinic: Tax implications of land and conversions sales

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

Here, Claire Hulme of accountant Duncan & Toplis advises on the tax implications of farmland sales and holiday barn conversions.

Q. I farm in partnership with my wife and we have recently sold some farmland. We are looking to convert one of the barns in our farmyard into a holiday let with the proceeds from the sale. What are the tax implications of this?

Claire Hulme
Associate director, Duncan & Toplis

A. There are various taxes that should be considered in this scenario.

If we start with your initial capital transaction, the sale of the farmland, may have resulted in a capital gain, on which capital gains tax (CGT) will be chargeable at 10% or 20%.

This is dependent on whether you are a basic-rate or higher-rate taxpayer, or a reduced rate of 10% if entrepreneurs relief (ER) is available.

See also: Why is my income tax bill up when profits have fallen?

You can, however, roll over the gain from the sale of the land into the conversion of the barn to a furnished holiday let (FHL), provided the barn is a qualifying business asset and is converted within the qualifying time period, which is one year before or three years after the disposal of the land.

FHL income is a taxable supply for VAT purposes.

If the FHL is to remain as an asset of the farming partnership and the farm is registered for VAT, the VAT on the barn conversion costs can be reclaimed. However, you will need to charge VAT on the lets, once the FHL is up and running.

In order for the property to qualify as an FHL, it must be commercially let with the intent to make a profit, and will only qualify as an FHL if it passes all three  occupancy conditions shown below:

  1. The property must be available for commercial letting as holiday accommodation for at least 210 days/year
  2. It must actually be let as holiday accommodation for at least 105 days a year; and
  3. If the total of all lettings that exceed 31 continuous days is more than 155 days during the year, this condition is not met, so your property will not be an FHL for that year.

Recent tribunal cases show it is hard to achieve business property relief (BPR) on FHLs, but each should be considered on a case-by-case basis.

Advice should be sought from a specialist adviser from the outset.

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