Budget changes in CGT rules – what they might mean down on the farm

Among the more minor changes introduced in Budget 2018 were some proposed alterations to the Capital Gains Tax (CGT) regime which were labelled as “Private residence relief: reform of ancillary reliefs”. These moves, which will take effect from April 2020, will reduce the exemption for the final ownership period of a partly exempt property from 18 months to 9 months (until April 2014 the period was 36 months). It will also restrict the lettings relief which applied when a property was partially let and partially owner occupied during the period of ownership.

It is not difficult to see why these reliefs are now seen as a way of enabling private landlords to reduce their CGT liability, but it will now bring a new area of complexity to many property transactions outside the simple “move out – move in on the same day” variety.

From the agricultural perspective, circumstances which could now give rise to a higher tax charge will include:
  • Farm cottages which are used for a number of purposes over their ownership including main residence, employee occupation and commercial letting.
  • Inter-family property swaps where different members exchange houses across the farm to reflect their particular family circumstances – these can be complex at the best of times.
  • Holiday letting of annexes which form part of the main residence will become more complex and much will depend upon the physical construction of the building. Calculations could prove complex and will need to involve previous usage and planning/rating correspondence. It seems likely that farmhouse B&B lettings, on the other hand, should continue to enjoy the lettings relief since there will normally be an element of shared occupancy.

Finally, the changes in the CGT payment date for gains on residential property sales will take effect from April 2020 after which date CGT will become payable within 30 days of completion. Most commentators anticipated huge practical problems in gathering and agreeing valuation aspects which will typically be difficult and time consuming for the more complex transactions that are likely to give rise to chargeable gains. The chancellor has, however, now announced that reasonable estimates of values and apportionment can be applied in order to compute provisional gains before the payment date.

Commenting on the changes, MHA agricultural partner John Billings remarked:

“These changes are probably seen as closing loopholes which have been used by private landlords, but removing these reliefs retrospectively will also catch many family situations where ownership and occupation don’t always tie up. Calculations are inevitably going to become more complex particularly where ownership extends over long periods, and good record-keeping will be essential.”

Get in touch with a member of our Agriculture and Rural Business team on 01903 234094 if you would like to discuss your CGT position.