Land sale – The Tax Implications of Selling to a Developer

by | Jul 8, 2024

Selling land to a property developer can be a lifechanging event and involves several tax considerations as well as prior structure planning. If you are considering a land sale, here are some key points to consider.

Capital Gains Tax (CGT):

CGT will be due when you sell the land (whether for development or not) on the gain arising on the property.

The CGT rates applicable to a sale of land are 10% or 20%, which is more favourable than income tax rates of up to 45%, which is why it is important to ensure that the sale structure does not fall within the income tax regime.

Rollover Relief:

If you reinvest the proceeds from a qualifying land sale into a newly qualifying asset e.g., property used in a trade, you can defer the gain arising on the land sale until the subsequent disposal of the new asset.

The newly acquired asset must have been purchased within a qualifying period being a year prior to the sale or three years after the sale of the original asset.

Business Asset Disposal Relief (BADR):

BADR reduces the CGT rate from 20% to 10% for gains up to £1 million per individual over their lifetime. There are various conditions which are required to be met for this relief to apply, therefore planning ahead is crucial to maximize this relief, especially if only part of a farm is being sold.

Income Tax Pitfall:

Anti-avoidance provisions known as “Transactions in UK Land” (TIL) rules can apply. These are rules to which profits will be charged to income tax rates if deemed that they have been generated from “trading in or developing land”.

Agreements that allow landowners to share in the future proceeds from the development will likely be caught by the TIL rules.

Sale agreements should be considered, and professional advice should be sought prior to entering such an agreement.

If you have any questions or queries about this subject, please contact Robert Black who will be happy to help.

Sage logo
Quickbooks logo
Xero Platinum partner logo
ICAEW logo