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Diversification and Capital Tax reliefs

By Ensors Team
5th Mar 2021

I write this article the day after the Chancellors announcements in his March 2021 Budget, following weeks of speculation for significant changes to the taxation climate that could affect our farming clients.

As it happens, very little by way of change was announced, but it remains important for farming businesses to keep a watchful eye on the availability of “Capital Tax” reliefs in relation to diversified enterprises. Changes to Capital Gains Tax and Inheritance Tax could have significant impacts on the ability to freely pass wealth to the next generation, as well as the ability to reinvest from the sale of properties into either buildings or greater areas of land.

It is generally accepted that diversified enterprises that involve a trade (e.g. buying or selling) or some form of activity (e.g. a leisure or tourism activity) can take greater advantage of the currently available Capital Tax reliefs.  Enterprises that are more akin to passive investment, such as residential and commercial building lets, and to a certain extent holiday lets, are more likely to create some tax planning obstacles.  It is therefore important that advice is taken before farmers consider and commit to any venture that involves a diversification away from the core farming business.

Early thought should also be given to which generation of the family will run the diversified business and whether property should be passed between generations to facilitate the business operation. The availability of Capital Tax reliefs to allow this will have a significant bearing on whether the desired objectives can be met.

For more information, contact your usual Ensors contact or a member of the Agriculture team.