Selling land before the next General Election could be the right decision to avoid the potential impact of tax changes.
This is according to the head of farm agency at rural property consultancy GSC Grays, John Coleman, who said that potential tax changes after the General Election will affect land.
Coleman said the major parties at varying times have all mentioned potential changes to Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR) which has “significant implications for farmland”.
The current Parliament first met on December 17, 2019, and will automatically dissolve on December 17, 2024.
Polling day for the General Election would be expected to take place 25 days later, not counting weekends or bank holidays.
“Whoever gets in at the next election will wish to review both CGT and BADR. Change is likely to come and if it does, it won’t be positive and could affect the land market so selling now is the message. It is the opportune time,” Coleman said.
“If you are considering selling part or all of your farming business you may be able to pay less Capital Gains Tax (CGT) if you qualify for Business Asset Disposal Relief (BADR).
“Claims to BADR are particularly complex, and given the amount of tax at stake, it is important to seek specialist advice when selling part or all of your business.”
CGT relief
BADR, previously known as Entrepreneurs Relief, can reduce the rate of CGT from 20% to 10% on all gains on qualifying assets.
It was introduced in 2020, and at the same time the lifetime limit was reduced from £10 million to £1 million. Any previous disposals under both BADR or the former Entrepreneurs Relief count towards this limit.
“From an Inheritance Tax (IHT) point of view, if Agricultural Property Relief or Business Property Relief is removed or amended, as has been discussed on occasion, it will have a significant influence on the potential demand in the market,” Coleman said.
“This is particularly important for those who have bought land to use as a vehicle to pass on wealth to family members tax free.”
There are many reasons why farmers and landowners may wish to sell land, not least the changes being driven by the Agricultural Transition Plan, GSC Grays said.
The rural property consultancy said some businesses will also be feeling “significant cashflow pressures” due to higher tax bills following a couple of good years, high interest rates on existing debt, high machinery and labour costs, coupled with a challenging harvest and difficult conditions this autumn for establishing crops.
“Farmers have had a tough time not only with the reduction of subsidies but 2023 has also been a horrible year harvest wise with damage to crops from pests and inclement weather” Coleman said.
“The margins are already cut pretty tight for the coming year where crops may have to be re-drilled, putting further pressure on cash flow and the ability to service loans.”
“The banks have been taking a tougher stance. We are not talking about farm repossessions because the banks are trying to avoid that at all costs, but there is more pressure on farm businesses to reduce debt and look at the serviceability of any loans they have got.”
Land sales
Coleman said blocks of land are coming to the market in part to address these debt issues.
“There is also a demographic coming into play with some older farmers, who find it difficult, or do not have the appetite, to get their heads around the agricultural transition change and new schemes, asking if it is the time to exit or restructure,” he said.
“In terms of land sales, now could be seen as a sensible time to sell. Bare land sales have been relatively strong, influenced by local buyers while whole farm sales are of more interest nationally.
“Institutional, financial and public bodies are purchasing for natural capital -nitrate neutrality, biodiversity and carbon capture. They have real money to spend and are active in the market and competing alongside NGOs.”
Coleman said how particular markets are targeted is going to be even more important in 2024 and local expertise will be crucial.
“We have agreed several sales where the buyers have been paying a 20% plus premium,” Coleman said.
“That is why we expect a particularly interesting year ahead in terms of the type of buyer and make up of land for sale, which if properly managed could generate further premium prices in the market.”
