Securing Business Asset Disposal Relief on a Farm Sale in Yorkshire

At Eaves & Co, we are often brought in by accountants and solicitors when complex tax situations arise that need specialist input. This case is a perfect example of how small details, particularly timing, can have a major financial impact.

We were approached by a firm of agricultural accountants acting for two brothers who farmed in partnership. They were in the final stages of selling 195 acres of personally owned farmland as part of a multi million pound transaction.

However, they were not retiring. The deal was structured as a sale and leaseback, meaning they would sell the land but continue farming it through a Farm Business Tenancy with the new owner.

The Challenge

The key objective was to secure Business Asset Disposal Relief on the sale. With the tax year end approaching on 5 April, this was time sensitive. The BADR rate was due to increase from 14 percent to 18 percent just days later.

Because the land was personally owned but used within the partnership, the transaction needed to qualify as an associated disposal under current legislation.

To meet the criteria, the brothers had to demonstrate a genuine withdrawal from the business. In practical terms, this meant reducing their share in the partnership’s capital assets by at least 5 percent.

At the same time, they still intended to continue farming the land under the new lease arrangement.

This created a very specific technical challenge.

Where Things Could Have Gone Wrong

The legal team involved in the transaction queried whether the partnership agreement could be updated after the land sale had been completed, or whether the order of events actually mattered.

This is where the risk sat.

If the land sale had been completed first, and the partnership variation signed afterwards, HMRC could have argued that no withdrawal from the business had taken place at the point of disposal.

This would have resulted in the complete loss of Business Asset Disposal Relief.

On top of that, HMRC do not accept retrospective changes to partnership agreements for Capital Gains Tax purposes.

In short, getting the timing wrong would have triggered a significant and unnecessary tax bill.

Our Approach

We stepped in early and worked directly with the accountants and solicitors to control the structure and timing of the transaction.

Our advice was clear. The reduction in partnership share had to legally take place before, or at the exact same time as, the land sale.

To remove any risk, we advised a strict execution sequence on the day of completion.

The clients attended their solicitor’s office and signed the Partnership Deed of Variation immediately before the land contracts were dated and exchanged.

This ensured that the withdrawal from the business was already in place at the point the disposal occurred.

The Result

By identifying the risk early and managing the sequencing of events properly, we ensured the transaction met the requirements for Business Asset Disposal Relief.

The clients were able to secure the 14 percent tax rate just days before the increase to 18 percent came into effect. The associated disposal from the partnership reduced the tax rate from 24 percent to 14 percent for the first £1m of gains for each partner.

On a transaction of this size, the saving was substantial.

Specialist Tax Support When It Matters Most

This case highlights the importance of getting specialist tax advice involved at the right time. Particularly when multiple parties are involved and transactions become more complex.

At Eaves & Co, we regularly support accountants, solicitors, and their clients with technical tax matters where the detail really matters.

If you are dealing with a complex transaction or need support on a specialist tax issue, our team is here to help.