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Capital Gains Tax


We assisted a farmer with arable and sheep farms who realised a capital gain as a consequence of a transaction involving a grant of an option over an area of land for a significant sum. Tax losses from his farming business were set against the capital gain, resulting in no liability becoming due.  HMRC enquired into the transaction and they sought to deny the loss relief. The consequence of this would have resulted in a large tax liability.

The Problem Faced

The legislation in this area is tortuous in that it considers the ability to utilise losses in terms of a fictitious farmer (a "competent farmer"). That is, in order to claim the loss relief, you have to demonstrate that not only would a competent farmer be able to make profits in the future but that profits could not have been made in the year of assessment and for the prior years.  In addition, despite the client having to deal with a family tragedy and investing considerable capital expenditure in developing the farms, the actual conditions and circumstances faced by the farms could not be taken into account.

Our Approach

Following four years of detailed correspondence we put together a report, which included income projections for the farm, using national statistics, together with photographs of the farm showing the work done and improvements made, and this was presented to HMRC's appeal team.

The Conclusion

Following the submission of our final report and having reached the steps of the court the case was finally dropped by HMRC. 

There was one heart stopping moment, whilst on those steps when the prosecuting barrister suggested our computation of a competent farmers profits did not help our case. However, we were able to clarify the position by pointing out the calculation of profits for tax purposes is made on a different basis to that when considering the profits to be made by a competent farmer.

Overall this was a very pleasing outcome for our client, as it saved a significant amount in tax and penalties, and a result of which the NFU have shown national interest.