Buy or sell land

Most people tend to focus on the legal processes when buying or selling land - but it's also vital that you complete the transaction in the most tax-efficient way - or you could be in for a surprise!

Whether you are selling a part of your garden to a developer or buying a farm or other commercial use, the amount of tax due on sale or purchase will depend on how long you own the land, both as a seller and buyer, and what it is used for.

Farmland can be treated differently to land sold for residential or commercial building.

Buying land for an agricultural business opens up different opportunities with the potential for some fairly significant tax savings in the future. There may typically be issues around Inheritance Tax planning, Capital Gains Tax (CGT) and VAT to consider.

If farmland is involved, the tax due on any sale will also depend on who is doing the farming, what is being farmed and whether there are any buildings involved.

There are also different ways to buy land, and these also will affect the tax you could pay. It can be bought in your capacity as an individual, in a partnership or as a company to name a few examples.

Selling part of your garden to a developer

This is not always straightforward. A sale may be tax free to a homeowner, but not always.

There can be Capital Gains Tax to pay, depending on the size of plot and whether the land has been used for anything other than what HMRC defines as a ‘domestic garden’.

When purchasing land, what is the land is used for will also affect the Stamp Duty Land Tax implications in what can be a complex calculation.

Farm businesses

There are ways to structure the sale of land held by agriculture business that allows the Capital Gains Tax liability to be rolled over if more land is bought. But this is not always a deferment worth making: future market conditions may make the tax bill tougher to pay, or the money owed may adversely affect your future tax planning.

There can be additional costs to buying land, such as auction or agent fees, to consider.

The two other typical land sale methods are:

• An option agreement with a potential buyer to purchase at an agreed price, but subject to necessary consents for change of use.
• A promotion agreement where a fee is paid for promotion on the open market. This will involve paying VAT on the fee owed.

If you are looking to buy or sell land and would like some expert guidance, contact us to arrange to speak with one of our specialists in London, Kent or Sussex.

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