Miss that rollover deadline? Don't panic!
16 July 2018
If you are a farmer fortunate enough to sell assets for your business for a significant gain, such as development land for example, you will be well attuned to the normal time scales for making rollover claims.
Typically, as a farmer, you can reinvest proceeds up to twelve months prior to the sale or, more normally, thirty six months after the sale in order to achieve a successful rollover.
Both the asset purchased and the asset sold must be used as part of a trade and, as with all tax reliefs, there is a number of other criteria that needs to be met, so careful planning is essential.
However, even with the best planning, there are often circumstances beyond a famer and landowner’s control that prevents them from meeting the relevant time scales. In particular, if you have endeavoured to achieve a rollover within the relevant time scales, but the planning has been thwarted by circumstances beyond your control, then there is the possibility to work with HM Revenue & Customs and obtain a discretionary extension to the rollover periods, if the circumstances are justified.
Every case is unique and applying for an extension is not guaranteed. Although, as with everything in life if you don’t ask you can’t have.
On many occasions, we at Old Mill come across circumstances where landowners have either abandoned a rollover claim or they have missed the opportunity to seek an extension as they approach rollover deadlines; this is usually without realising that there is the chance of obtaining such an extension. In some circumstances, farmers have actually made acquisitions of assets which don’t really fit their business needs or their personal aspirations, but have made the purchase simply to meet the rollover deadline. It is in this scenario that a conversation with the Inspector in advance of that deadline could have helped the situation significantly.
Also, remember that buying replacement land comes at a significant tax cost in terms of Stamp Duty Land Tax (SDLT). With SDLT on commercial property purchases running as high as 5%, it may be an attractive alternative to secure Entrepreneurs Relief on the disposal of the original asset. This will reduce the Capital Gains Tax to 10% without then having to make a reinvestment. This could then give you the freedom to use the cash for other non-trading businesses; perhaps you could secure funds for retirement for lifetime legacies or repay debt.
Do make note, however, that where there is not reinvestment in farm land, there may be significant Inheritance Tax (IHT) implications with holding significant non-qualifying assets. Both Capital Gains Tax (CGT) and IHT need to be considered as part of any reinvestment strategy. From an IHT perspective, this is where advanced planning can be all the more relevant, perhaps by moving some, or all, of the interest in assets that are likely to result in a significant gain to the hands of the next generation, either outright or through the medium of a trust. The latter will provide protection for those assets in the short term.
Old Mill’s Specialist Agricultural team are always happy to help you and talk about all of your options.