Farmers affected in government clampdown on extra dwellings

The government’s clampdown on second homes is likely to affect famers and rural estates looking to diversify, according to the Central Association of Agricultural Valuers (CAAV).

The Association said that in the last few years they had seen an increasing tax assault on people with extra dwellings and warned that farmers needed to be aware of the changes.

Since 2014 the government has taken a much tougher stance on the taxation of second homes and extra dwellings introducing new changes to the Wear and Tear allowance, creating a three per cent surcharge on Stamp Duty Land Tax and changing the rules in regards to mortgage interest relief.

The CAAV added that while former Chancellor George Osborne cut the general rate of Capital Gains Tax (CGT) from 28 per cent to 20 per cent from April 2016, the 28 per cent level remained the same for gains made on residential property – excluding an individual’s principal place of residence, which still qualifies for 100 per cent relief.

CAAV Secretary and Adviser Jeremy Moody said: “From April 2019 the tax must be paid within 30 days of the ownership transfer, which could create some serious cash flow difficulties for anyone handing properties over to the next generation,  

“It will also raise considerable challenges when it comes to defining residential property, and calculating the capital gain, which may go back to 1982 base values.”

As an example, he added, a barn in the process of conversion is likely to be classified as residential and therefore apportioning the gain in mixed use properties, such as a farm, will be particularly difficult.

In the case of a farm sale, CGT on the land and buildings will be levied at 20 per cent, whereas the gain on residential properties will be charged at 28 per cent.

“A lot of property has been owned for a long time, so the gain will be calculated on 1982 base values, and if it’s been developed from a barn into residential use more recently that will present a further challenge,” says Mr Moody.