How will Wednesday's Budget impact on landowners?

In advance of Wednesday's Statement, Ian Barnett, National Land Director at LRG shares his advice:

It now seems inevitable that the government will raise Capital Gains Tax and Inheritance Tax in Wednesday’s Budget. Furthermore it is likely the agricultural relief on Inheritance Tax will be removed.

The implication of the rise in Capital Gains Tax is that land sales will become less profitable because of the higher level of tax payable. As far as Inheritance Tax is concerned, the cost of settling an estate in probate will increase both as a result of the percentage increase in tax payable and because tax will be payable not only on monetary inheritance but on the value of land that forms part of the estate.

In some circumstances it may become necessary, against the wishes of its owners, for inherited land to be sold, resulting in the breaking up of farms which may have been within a family for centuries.

I have discussed this issue with several landowners, whose response to the likely change varies considerably.  Many larger, institutional landowners will stall plans to sell land and ‘sit it out’ until a change of government and a reversal of the change.

Others will lack this flexibility and will sell despite the additional tax burden. The good news for landowners in this position is that while the tax burden will have increased, so too will the likelihood of gaining planning consent.

Land which does not currently have planning consent (and may have been unlikely to achieve planning consent prior to the general election) now has a greater chance of gaining consent, and is therefore of greater value, due to expected change in planning policy.

Some landowners will have negotiated a tax freezer clause, removing or delaying their sale obligations.  In most cases however, tax freezer clauses start at 50%, making this relevant only in the case of a very substantial hike in Capital Gains Tax and there is no guarantee if and when the tax burden may reduce in future.   

So who are the winners and losers in this situation? Unfortunately smaller-scale family farms are likely to lose out – which seems at odds with the government’s pledge not to disadvantage working people.  Land sold through necessity could be bought by large-scale corporate farming businesses – those for whom Capital Gains Tax and Inheritance Tax are not a concern.

Transferring land in personal ownership into a company structure may prove a canny move smaller-scale landowners too (depending on the increased level of Corporation Tax that results from Wednesday’s Budget).  Some landowners will have already transferred their land holdings into a Limited Company or a Family Trust.

My message to all landowners is to seek good professional tax advice. In the case of a land sale, do so at an early stage to reduce your tax burden and increase the options available to you. If you are part-way through a land sale, ask your solicitor to review the contracts to check your position. Stay tuned to changes in planning law, which may provide some welcome news.