Farms and Estates update: Capital gains tax on asset sales

Published: Monday 22 February 2021

There has been much recent speculation about future tax increases and that capital gains tax (CGT) may be the subject of an increase.

The current rate of CGT of 20% for individuals, for assets other than residential property, is the lowest CGT rate we have seen. If individuals are planning to sell assets in the near future, in order to pay tax at the current CGT rate they need to ensure that the effective date for tax purposes occurs before any increase in the rate.

Effective date for tax purposes

For all unconditional contracts, the effective date is the date of exchange of contracts. For land sales, completion can often take place at a much later date. However, provided the contract is completed, the effective date for tax purposes will remain the date of exchange of contracts and CGT will be charged at the rate in place at that date.

Conditional contracts

Where a contract stipulates certain conditions must be met or events must take place before completion, which is often the case when land is sold for development, the effective date for tax purposes is the date when all conditions are fulfilled. Therefore, even though a ’physical’ exchange of contracts may have occurred at a much earlier date, CGT will be charged at the rate in place when all the conditions have been met.

CGT due date

Generally, the CGT payment date for individuals is 31 January following the year ended 5 April in which the effective disposal date occurs. The exception is tax due on residential property, where the tax now must be paid within 30 days of completion.

The tax is due on 31 January following the tax year of disposal, even if all the proceeds have not been received by that date. However, where the proceeds are being received by instalments over 18 months or more, the taxpayer can elect to pay the tax by instalments. Instalments can be for a period of up to eight years, or until the final instalment of the sale price is received if this is sooner. Interest is only charged on any instalment paid late.

If you have any questions about asset sales and the CGT position, contact Peter Griffiths at peter.griffiths@hazlewoods.co.uk or 01242 680000.

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Peter Griffiths
Peter Griffiths
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