Last week’s Government announcement of a review of Capital Gains Tax (CGT) follows multiple reviews of Inheritance Tax (IHT) by the OTS and All-Party Parliamentary Group in the last couple of years. No dates have been given for changing the CGT or IHT system, but the expectation is that the Chancellor will outline the next steps during his autumn Budget with legislation in April 2022 at the earliest. What is clear though, is a growing sense that the capital taxes are set for reform. This is particularly worrying for the rural sector which relies on many capital tax reliefs for inter-generational planning. These tax developments come in the wake of changes to subsidy support, trade tariffs and labour restrictions which are posing their own challenges for the sector.
Many farms and estates are currently transferred through the generations via gift holdover relief and agricultural or business property relief, with minimal CGT and IHT being paid, allowing them to remain intact and profitable businesses for the next generation. This relief is crucial to the future of the UK’s rural sector, bringing younger generations and fresh ideas to the sector. Equally, the ability to pass on the main farmhouse through CGT main residence relief can be critical.
Arable land plays a key role in the UK’s housing sector, with landowners highly incentivised to sell when development land is required. In some circumstances, landowners are able to defer gains on these sales by reinvesting in qualifying trading assets through rollover relief. Development land sales often present opportunities for rural businesses to expand and become more efficient, adding value to the rural sector. A change to rollover relief could see development land sales of this type curtailed.
The rural sector is likely to be heavily affected by any changes to CGT or IHT. With the Basic Payment Scheme being phased out and difficulties to come following Brexit, landowners do not need a less favourable tax landscape. In gathering evidence in its review, it is crucial the OTS consults with the rural community and that the rural community voices its concerns now.
RSM will engage with the OTS and to ensure its clients are represented. We encourage the rural community to complete the online capital gains tax survey, part of the OTS evidence-gathering process. The rural sector cannot rely on the tax landscape remaining as it is now, and it must make sure its voice is heard.
Responses on the principles of capital gains tax are invited by 10 August 2020 with responses to the main call for evidence covering all aspects of CGT required by 12 October 2020.