Legal implications of gifting sites

In this blog, 2020 Architects, alongside accountancy experts  Agnew, Mitchell & Cairns Accountants,  examine the legal pitfalls when selling a site on a farm and the financial problems when gifting a site to a friend or relative.

Rural sites in Northern Ireland are fetching from £40,000 upwards.  The price of sites mean that building sites are a significant financial asset for farmers and should be handled in a professional manner to achieve the greatest return.


Transfer of sites

In the case of a site which is gifted or partly gifted, if the transferor is elderly or infirm then he/she should be aware that there is a possibility it could be construed by Social Services as a deprivation of benefit if the transferor ever requires residential or nursing care or receives any other state benefits in the future.

In addition, despite the fact that there will no exchange of monies, when a gift of land occurs HMRC will deem any transfer between connected parties to take place at market value and consequently Capital Gains Tax may arise.  There are reliefs and claims available to defer and/or mitigate any tax that may otherwise become chargeable.   This is a complicated area and specialist legal and taxation advice should be sought before proceeding with the gift.

Sites sold from a farm

Sites sold from a farm are subject to Capital Gains Tax. Capital gain is calculated on the difference between the sale proceeds, net of legal fees and agent fees, and the cost of acquisition.  If the land was inherited rather than purchased, probate value will be substituted for the cost of acquisition.  Essentially, this means the value of the piece of land at the time of the inheritance.  If the land was acquired by the vendor pre March 1982, the value at 31 March 1982 replaces the cost at the time of  acquisition in the calculation of the gain.   For reference, a fair market value for good arable ground of about £2,000 per acre has been accepted by HMRC.   

The rate of tax payable on the gain is determined by the tax year in which the site is sold. The date for the sale is the date that the contract for sale is singed and not the date of completion. The rate of Capital Gains Tax is currently dependent upon an individual’s total taxable income from self-employment, employment, and investment income in the tax year.

The calculation of a Capital Gains Tax liability can be a complicated one but it is safe to assume that for most sites sold after 6 April 2016 this rate will be 20%, although this should be confirmed by an accountant with experience in this field.

Each individual has an annual tax exemption currently £11,100. Reliefs may also be available.  

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