Local Government is under pressure provide housing and improve local roads and transport schemes. Many landowners are facing the compulsory purchase orders and the compulsory acquisition of their property.
Whilst compulsory purchase orders (CPOs) can result in significant cash payments they can also mean a high level of uncertainty. This is particularly true where the final route of a transport scheme takes a time to agree.
There are many issues arising out of CPO but in this article, we concentrate on the tax. A disposal of land will normally result in a capital gains tax (CGT) liability. For farm property owned by individuals, the gain would be taxed at 10% to 28% depending on the individual circumstances and whether the property is residential or non-residential.
If the proceeds in a tax year are below £20K and represent less than 20% of the market value of all the land before the part disposal, the tax can be deferred until the remaining land is sold. Where proceeds exceed this limit
rollover relief can be helpful if the proceeds are reinvested into new assets. There are conditions and a time limit for reinvestment being within a four-year window. Commencing one year before the sale and ending three years
after it. HMRC can exercise their discretion and extend those time limits if it can be demonstrated that there was a real intention to acquire replacement property within the time limit but circumstances beyond control
Can entrepreneurs relief be claimed on compulsory purchase orders?
In some cases, it may be important to consider whether entrepreneurs’ relief can be claimed. If so the whole gain could be charged to tax at the lowest possible rate of 10%. If reinvestment of the proceeds is unlikely planning
will be required to ensure a claim for entrepreneurs’ relief can be made. The rules are complicated and will require planning some time before the sale.
Where a payment is received for a devaluation of property this payment is also likely to be chargeable to CGT and available for rollover relief. However, where a payment is received for the temporary loss of use of farmland,
for example where developers have used the land for storage or access to the construction site, then this payment is subject to income tax.
CPOs can be unsettling and the effect on the farming business can be severely disruptive. Speaking to your professional advisors early on is important. Contact our expert agricultural team now