Selling land to a developer – is that trading or a capital gain?

 

Farmers and other landowners will often be approached by developers seeking to obtain planning permission to build on the land. Great care is needed to avoid unnecessary tax charges on the transaction. HMRC have recently updated their guidance on transactions in land clarifying that under certain circumstances some of the eventual profit can be taxed as income not a capital gain. For individual property owners that could mean 45% income tax as opposed to just 28% CGT.

For example, a landowner sells some land to a developer for £5 million plus 10% of any profit on the development over £6 million. If the profit on the project was £8 million then the additional £200,000 would be taxed as a trading profit.

The tax rules in this area are complex. If you are involved in such a deal contact us so we can advise on the best way of structuring the transaction.

 

4 Comments

  1. Janet-Reply
    August 8, 2017 at 5:19 am

    A developer has put in an offer to buy approximately 15 5acre blocks of land (of which we are one).
    We would like to hold on to our home (which we have lived in for 10 years)which means only selling 2.5-3 acres. Would be up for Capital gains tax/GST? We do not have any other investments

    • August 11, 2017 at 10:20 am

      Hi Janet, thanks for getting in touch. Afraid we don’t have GST over here in the UK but there would potentially be a Capital Gains Tax liability. It’s a very complex area of tax so each case would have to be looked at in great detail to provide a specific answer. Please feel free to get in touch if we can help you any further?

  2. Adrian Williams-Reply
    November 28, 2017 at 1:57 pm

    Hi, did the CGT on land sales change in 2016?

    I thought 28% CGT was for sale of property not Land?

    • December 6, 2017 at 1:24 pm

      Hi Adrian – under certain circumstances, the higher rate of 28% may still apply to the sale of Land. It’s important to look at the specifics of each transaction to determine the correct rate of CGT has been applied. Please feel free to give us a call or send us an email if you need to discuss further.

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