How can you minimise your Capital Gains Tax liabilities?

By Heather Bright, Partner and ARA specialist

The sale of land and other assets is a common occurrence in the agricultural sector, often driven by the need for liquidity or strategic business restructuring. However, these sales can result in significant Capital Gains Tax (CGT) liabilities.

For farmers, understanding how to minimise CGT is crucial for maintaining financial health.

Understanding Capital Gains Tax

Capital Gains Tax is levied on the profit made from selling an asset that has increased in value. The rate of CGT for individuals in the UK ranges from 10 per cent to 28 per cent, depending on the type of asset and the individual’s income tax band.

Strategies for minimising CGT

1. Utilise annual exemptions

Every individual in the UK has an annual tax-free allowance for capital gains, known as the annual exempt Amount. For the tax year 2023-2024, this is £6,000. If you’re planning to sell multiple assets, consider spreading the sales over multiple tax years to utilise this exemption fully.

2. Transfer assets to spouse or civil partner

Transfers between spouses or civil partners are generally exempt from CGT. If your spouse or civil partner has not utilised their annual exemption, consider transferring the asset to them before selling.

3. Hold assets for the long term

Assets held for more than 12 months may qualify for Business Asset Disposal Relief, which reduces the CGT rate to 10 per cent. This is particularly beneficial for farmers looking to sell business assets.

4. Reinvest in qualifying assets

The Rollover Relief allows you to defer CGT by reinvesting the proceeds from the sale into new business assets. The relief is available for various assets, including land and buildings, used in an agricultural trade. You must buy the new assets within 3 years of selling or disposing of the old ones (or up to one year before) to qualify for this relief.

5. Gift Aid donations

Making a donation to a charity through Gift Aid can extend your basic rate tax band, potentially reducing your CGT rate on the sale of assets.

6. Utilise Losses

If you have made any capital losses, these can be offset against your capital gains to reduce the CGT liability. Keep accurate records of both gains and losses for this purpose.

Reducing CGT liability requires careful planning and a thorough understanding of the tax rules and reliefs available. By utilising annual exemptions, transferring assets, holding assets for the long term, reinvesting in new assets, making Gift Aid donations, and offsetting losses, farmers can significantly minimise their CGT payments.

If you’d like more information about how to reduce your CGT bill, our team are on hand to offer professional advice. Contact us today.