Written by Ray Coman
As an investment, land has the enchantment of tangibility. Agricultural land is a considerable interest for purchasers looking to obtain roll-over relief. This is a mechanism by which capital gains tax on a business disposal can be deferred. Agricultural land and woodland benefit from inheritance tax relief.
Land as part of the home
Where land is part of a principal private residence, it will be often be exempt from capital gains tax. The principal private residence (PPR) includes the main dwelling, close by buildings, gardens and other land in a 'permitted area'. Grounds up to half a hectare are straightaway 'permitted.' In certain cases, acreage greater than the permitted area is PPR if needed for 'reasonable enjoyment' given the size and character of the dwelling house.
To be regarded as PPR, the accompanying grounds need to be sold at the same time as the main dwelling.
Part disposals of land
Provided the disposal of land is “small”, it is possible to elect (under s.242 TCGA 1992) for the proceeds to be deducted from the base of cost of the remaining part. Where the claim is made, the proceeds will not be immediately charged to CGT. “Small” means proceeds are below both £20,000 and 20% of the market value of the part disposed. The combined value of all land disposals in the same tax year cannot be £20,000 or more. The land must not be a wasting asset which, in practice, means it must have a lease of at least 50 years.
The special rules apply to part disposals of land only and therefore exclude disposals of buildings.
Gains on the disposal of land acquired by the local authority under compulsory purchase can be deferred to the extent that these are invested in new land and property. However, the replacement property cannot be a principal private residence. The rules are similar to those which related to property that has been destroyed.
Compensation on compulsory purchase of land can be rolled over where proceeds are small. Compensation is ‘small’ if it is less than either £3,000 or 5% of the market value of the land before the part disposal, even if the proceeds exceed £20,000.
If the proceeds on a small part disposal exceed cost, the taxpayer may elect to deduct the whole of the cost from the proceeds. The base cost is therefore nil.
The part disposals rules mirror regulations relating to compensation for damaged property