Over the years, a number of farm businesses will have acquired parcels of quoted shares, sometimes by way of a purchased investment, but more commonly when spun out on the flotation of a co-operative trading entity. Many farm accountants have been seeing these shares being sold by their farming clients, some of which have grown significantly in value over the years. This article will briefly cover some of the salient tax aspects.
Summary of Key Points
- The majority of farms in England and Wales are operated through partnership structures. The sale of the shares will be a disposal for capital gains tax purposes. This article does not cover the taxation of Limited Companies on the disposal of shares.
- Where the farm is run through a partnership, care needs to be taken to ascertain whether the shares are a partnership asset, or not.
- Whilst the holder’s name on the share certificate may provide an indication of ownership, it is not necessarily definitive.
- Review the partnership agreement to see if the ownership is covered or see how dividends have been split for income tax purposes.
- Once the capital gain has been established, the gain (or loss) apportioned to each partner can then be calculated. In some cases there is a Nil base cost for the shares (such as in many cases where Genus PLC shares are owned).
- If the shares have been acquired via lifetime gift or through Will bequest, then market value at the time of transfer is likely to be the base cost.
- Remember, Business Asset Rollover Relief will not be available on the sale of shares which are held as an investment.
- However, dairy farmers in particular may well have unused brought forward capital losses from when Milk Quota was abolished in 2015, provided the losses were claimed within the appropriate time limits.
- Whilst advice should be sought from an IFA, in some cases the gain on selling shares can be deferred or exempted with a qualifying investment into an Enterprise Investment Scheme or Seed Enterprise Investment Scheme.
- Any current-year capital losses can be offset against current year capital gains so a careful review of all shareholdings by the farm partner should be undertaken to see whether it is beneficial to dispose of any investments that are pregnant with gain.
- Farm trading profit shares can be reviewed carefully to ensure that Capital Gains Tax (CGT) payable at the higher 20% rate is minimised, preserving the lower 10% rate of CGT. Maximising capital allowances for the farm business in the tax year may have the benefit of saving income tax, class 4 NICs and CGT!
- As ever, clients should be encouraged to take advice from their accountants in advance of a transaction happening to help plan for taxation purposes.