With agricultural land values on the rise, more and more landowners are considering selling their land for development. As tax accountants, the team at Williamson & Croft regularly work with farmers and landowners, so we understand that navigating the tax implications of these sales can feel overwhelming due to their complexity.
That’s why we’ve created this straightforward guide to help you cut through the noise and get a top-level view of your options in order to make an informed decision if you’re considering a land sale.
What tax will you stand to pay?
Here’s the first thing you need to know – when you sell your land, you’ll usually pay either Capital Gains Tax (CGT) or Income Tax. Understanding which one applies to you depends on how you sell your land.
The most common scenario: Capital Gains Tax
Most straightforward land sales fall under CGT. Here’s something important to watch out for though – you might need to pay all your tax upfront, even if you’re receiving payments for your land over several years. This can cause some serious cash flow headaches if you’re not prepared for it.
The good news? There’s Business Asset Disposal Relief that might help you pay just 10% tax on gains up to £1 million. This could be a helpful option if you’ve been farming the land yourself and sell within three years of stopping farming.
When you might pay income tax instead
Sometimes, you’ll need to pay Income Tax rather than CGT. This usually happens in two situations:
- If you’re already in the property development business
- If you agree to receive extra payments based on how successful the development is (we call these ‘overage’ payments)
Special considerations for development land
When selling land for development, you have several options depending on your appetite for risk and reward. Here are some of the most common approaches.
Outright sale
This is exactly what it sounds like – you sell your land outright and get paid there and then. You might get less money overall but it’s straightforward and you know exactly where you stand.
Overage agreements
Some developers might offer you a share of their profits once they’ve built on your land. Just remember – these extra payments usually count as income, not capital gains, so they’re taxed differently.
Property in exchange
Sometimes developers offer to give you one or more of the houses they build instead of (or as well as) cash. Watch out though – the value of any property you receive usually counts as income for tax purposes.
What about VAT?
VAT on land sales can be tricky. Usually, you don’t charge VAT when you sell land, but sometimes it makes sense to opt in to VAT – especially if you’ve spent money developing the land. It’s worth getting advice on this one, as it affects both you and your buyer.
It’s important to note that since October 2024, the higher rate of CGT went up from 20% to 24%. This makes it even more important to get your tax planning right.
Other planning points to consider
When it comes to selling agricultural land, a bit of forward planning can save you a significant amount in tax. From our experience working with landowners, there are several key things you’ll want to think about before making any final decisions.
Here are some of the most important points to consider:
- Think ahead about timing – could spreading the sale over tax years benefit your position?
- Consider whether you might qualify for BADR before structuring your sale
- Review any existing Agricultural Property Relief (APR) position before making changes
- Get professional advice early – especially if multiple landowners are involved
Need help planning your land sale?
At Williamson & Croft, we’re well-equipped to help landowners navigate these complex decisions. Whether you’re considering a sale now or planning for the future, our expert team can help you structure the transaction in the most tax-efficient way possible.
Contact our team of land and property accounting specialists today to discuss your specific situation and explore your options.