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Rollover and replacement potential for farms needs the correct understanding of ownership

A large number of current farm acquisitions and many potential farm purchases involve funding from ‘rollover monies’ derived from farm development gains. But what is involved with the whole process? Julie Butler F.C.A explains.

The tax logic is simple – a large number of homes need to be built and farmers are obtaining very reasonable returns per acre on development projects and often seek tax shelter by further farm acquisition. The purchase of farmland is a very efficient shelter for capital gains tax (CGT) via the rollover relief route.

The tax consequences when a farmer sells a parcel of land that has potential for housing development are complex. There can be the sale of part of a farm for a high price rolling over the gain into a new farm. All development projects must be reviewed on a case-by-case basis and full tax planning put in place well in advance of the final transaction. A review for tax planning can also look at the question of eligibility, ie whether assets sold are genuinely used in a business.