In working out the CGT payable for the current tax year, taxpayers will be able to deduct losses and the AEA in a way which minimises the tax due.  In a recent case which grabbed media headlines, a farmer’s total taxable income and capital gains tax AEA was less than the basic rate income tax band – therefore the rate of Capital Gains Tax was 18%.  For gains above that limit, the rate was 28%.  Advice on every disposal should be taken from legal professionals, in particular as to what allowances and reliefs are available.  A simple analysis of the 2010 Budget and what it means for a landowner, is set out below:

1.    Farmer Giles has taxable income in 2010/11 of £27,400.00, after taking off all allowable reliefs and allowances.

2.    Basic rate tax band goes up to £37,400.00. 

3.    He sells an asset in May 2010, which means a chargeable gain of £17,000.00.  But in November 2010, Farmer Giles sells another field, which means he has a further gain of £25,100.00.

4.    Unfortunately, Farmer Giles has no allowable losses which can be set off against these gains, and no other reliefs available.

5.    But Farmer Giles has a tax lawyer who points out that Farmer Giles’ income is £10,000.00 less than the upper limit of the basic rate tax band.  So Farmer Giles can set the AEA against the November 2010 gain (because part of that gain is liable to tax at the higher 28% rate).  This will mean £15,000.00 in total is taxable and the first £10,000.00 of that £15,000.00 gain from November is taxed at 18%.  This is because it takes it up to the basic rate tax band limit. 

6.    The remaining £5,000.00 is taxed at 28%. 

7.    Because Farmer Giles sold land in May 2010 before the Budget on 23rd June, that £17,000.00 chargeable gain is payable at the old 18% rate. 

As with all cases, it is advisable to take professional advice before decisions are made. We will also need to remember that rates could increase again for the next tax year, but we will not know until the Pre-Budget Report in November, or until Budget Day next Spring.

This article is for general information purposes only and does not constitute legal or other professional advice. You should not act or rely upon this information.

Author: Jeanette Dennis, Agricultural Solicitor

Published: EADT

Date: August 2010

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