There have been many proposals for capital gains tax reform. Some of the ideas circulating, which may well be introduced, include:
- The introduction of some form of wealth tax, which could cause problems for rural businesses where wealth is tied up in illiquid assets.
- The removal of the CGT base cost uplift on death if agricultural or business property reliefs are claimed.
- The tightening of the trading test for business property relief to 80 per cent trading (the current test is 51), impacting property-rich, diversified rural businesses.
A recent parliamentary debate covering rural landlords and tenancy reform cited the Tenant Farmers Association’s proposed changes to taxation. These include the restriction of 100 per cent agricultural property relief to those letting land on farm business tenancies for more than 10 years, and restricting business reliefs where landowners use share farming, contract farming, share partnerships and grazing licences as farming arrangements.
Many rural businesses enter into these arrangements for personal and commercial reasons and not just for the tax benefits. For example, the landowner contributes the land, but it may not be beneficial investing in the increasingly sophisticated farm machinery which a contractor can deploy across multiple contracts. These arrangements allow wider participation in the land and contribute to a stable environment. The relationship between landowner and tenant is important to maintain and requires very careful thought before any changes are made, particularly in this post-Brexit era of uncertainty.
Changes to the tax regime could become detrimental to tenants, encouraging landlords to bring more land directly in hand, to retain flexibility for themselves and their families. Given the value tied up in land, the tax reliefs are increasingly essential to enable businesses and business assets to pass to the next generation intact, maintaining stability for all who rely on the land and rural landscape.