Capital Gains Tax and Reliefs
23 January 2025
Following the Autumn Budget the rate of Capital Gains Tax (CGT) was increased with immediate effect – CGT is a Tax on the profit generated when you sell or dispose of an asset where the value has increased, this applies to sales of Agricultural land and farms.
For farmers this means that any large sales need to be carefully considered and to seek advice from an accountant with the correct Agricultural knowledge.
This document explains the rates of CGT, the allowances and the various forms of relief that are available regarding Capital Gains Tax.
Capital Gains Tax
The rate at which CGT is paid is dependant to your taxable income for the year, the size of your gain and type of gain. For all the current rates please see the HMRC website.
| Tax Rate | Before 30 Oct 2024 | After Oct 2024 |
|---|---|---|
| Basic Rate | 10% | 18% |
| Higher Rate | 20% | 24% |
This has brought the rate for CGT in line with gains from Residential property which were 24% Pre-Budget.
Each individual has a £3,000 tax free allowance from CGT, regardless of the tax rate applied. This remained unchanged by the Autumn budget.
If you pay tax on a Self-Assessment basis, which is common within Farming businesses, then the deadlines and requirements for what you must report and when you need to pay CGT differ to those on a PAYE basis so make yourself aware of these.
There are various reliefs available in relation to CGT that can be applied in different situations where appropriate, these reliefs include –
- Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs Relief
- Rollover Relief
- Holdover Relief
- Principle Residence Relief (PRR)
- Investors Relief
Business Asset Disposal Relief (BADR)
In the case of sole traders and partnerships where you have owned the business for at least 2 years, you may qualify for Business Asset Disposal Relief (BADR) when you sell or dispose of all or part of your business. In the case of closure you must dispose of your business assets within 3 years to qualify for relief.
BADR is a relief which may allow you to pay less capital gains tax when you sell all or part of your business. However, by 6 April 2026 the BADR rate will be in line with the Lower CGT rate.
There is a lifetime limit for BADR which remained unchanged post budget at £1 million.
| Timeline | BADR Rate | Total Payable on £10000 gain | Post Budget increase on £10000 gain |
|---|---|---|---|
| Up to 5 April 2025 | 10% | £1000 | £0 |
| 6 April 2025 to 5 April 2026 | 14% | £1400 | £400 |
| 6 April 2026 | 18% | £1800 | £800 |
Rollover relief
Rollover relief is available where the sale of an asset used in your business is reinvested into replacement assets also used in your business. The payment of the CGT liability is deferred until the sale of the replacement asset.
To qualify for Rollover relief the date of purchase for the replacement asset must fall in the period of 12 months prior to sale and up to 3 years post sale of the original asset.
If only part of the proceeds of the initial sale are reinvested, then relief is restricted to the sum invested. Any new asset must be used for trading/business purposes immediately after purchase. For full details see the HMRC website.
Hold over relief
Hold over relief is a relief that postpones the payment of CGT when an asset is gifted or sold below market value to another party.
The new owner is responsible for paying any CGT when they sell or dispose of the asset, the liability is ‘held over’. The claim for Hold over relief is not automatically applied to a sale and the claim must be made jointly between the person gifting the asset and the person receiving it. The new owner also takes on the ‘base cost’ of the person gifting the asset – this means that if sold in future they would pay CGT on the difference between sale price and the original purchase price of the person who gifted it.
Assets used for the purpose of a trade will usually qualify for this relief, gifts of qualifying agricultural land or buildings can potentially qualify for this relief. Assets that are gifted in lifetime rather than on death will use holdover relief to avoid a CGT charge.
Private Residence Relief (PRR)
PPR is a tax relief which permits UK taxpayers to sell their main home without being subject to CGT. To qualify for this relief the property needs to be or have been your primary residence.
If only one property is owned and lived in the relief is automatically applied, if more than one property is owned and lived by the owner then can nominate a primary residence within 2 years of acquiring a subsequent property.
Married couples and civil partners can only have one primary residence between them at any one time and if a second home is abroad then other rules apply.
Investors Relief
Investors relief is designed for individuals who are not actively involved with the business, it can reduce their CGT liability if the qualifying criteria are met.
Investors relief is subject to a £1 million lifetime allowance and is not usually available to anyone that is employed within the business in question.
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