Income Tax or CGT

Income Tax or CGT

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Cient bought land 2008

Intention was to hold land and increase it's value by planting xmas trees

Client planted trees in 2010 and has sold the land, including the unharvested trees in 2012 at a "gain/profit" of £500k

A valuation of the land at disposal date showed that the trees accounted for 50% of the sale price.

This is short rotation coppice and not woodland so there is tax to pay on the full uplift. 

but which tax? and if whole or in part CGT, would ER be available?

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By MBK
15th May 2013 12:35

Being short rotation coppice...

.. you have to split the sale proceeds into two for tax.

The 50% that's attributable to the trees is treated just like any other farming crop  - so subject to income tax in the normal way.

The 50% attributable to the land will be subject to CGT. ER should be available if what he has done is dispose of the entire business. Possibly more problematical if it's only a part.

 

 

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By blok
15th May 2013 13:00

.

yes I'm coming round to that idea as well.

Could there be an argument by HMRC that his intention was to trade in land and he had no intention to trade as a xmas tree seller?  i.e. the only reason for the planting was to enhace the land prior to sale.  Everyting subject to IT.

 

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Replying to possep:
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By MBK
15th May 2013 13:58

I think they'd have great difficulty

mounting that argument. After all, it is their rules re short rotation coppice that say it is to be taxed as a crop. They would have to negate that in some way.

Your argument would be that their rules say he is selling two assets - a crop in the course of production plus some land. 

You could readily say that, if your client had bought a warehouse, filled it with widgets and then sold the warehouse with the widgets in it for an enhanced sum, then that was dealing in land. That wouldn't make sense.

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