Entrepreneurs allowance and barn conversion

Entrepreneurs allowance and barn conversion

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I'm a small scale farmer who has obtained planning permission to convert a barn to residential.
If I sell the unconverted barn with planning permission I think I should be able to claim entrepreneurs allowance as I would also close the farming business at the same time as the sale.
My question is - If I convert the barn, live in it myself for a few years whilst carrying on the farming business, but then sell the converted barn at the same time closing the farming business, can I claim entrepreneurs allowance on the capital gain from the barn even though I have spent money renovating/converting to residential ?

Thank you in advance,

John

Replies (5)

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By Satwaki Chanda
18th Jul 2015 10:40

Doubtful

John

I'm assuming you own the farm and the assets personally, and not through a company.

Selling the barn at the same time as closing the business

If I sell the unconverted barn with planning permission I think I should be able to claim entrepreneurs allowance as I would also close the farming business at the same time as the sale.

By "close the farming business" if you've closed the business by stopping trading then ER for the barn can be claimed, but only if:

1. The barn is still in use at the time the business ceased; and

2. You sell the barn after you close the business, not at the same time. And you have three years to do it. 

If you find a willing buyer for the farm, then no, you won't be able to claim unless you sell the barn to the same buyer. If the business is still live and kicking, the assets can only qualify for ER if the whole or an identifiable part of the business is sold.

But my doubts arise from this: Is the barn still in business use, now that you've obtained planning permission? Doubtful.

Converting the barn and selling it later

If I convert the barn, live in it myself for a few years whilst carrying on the farming business, but then sell the converted barn at the same time closing the farming business, can I claim entrepreneurs allowance on the capital gain from the barn even though I have spent money renovating/converting to residential ?

No. Whether you sell the farm or cease trading. The problem here is that the barn is no longer in business use at the time the farm is sold, or at the time you cease trading.

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By John Bai
19th Jul 2015 12:39

Barn conversion CGT
Thank you very much for this information Satwaki. It has been very helpful.

Ideally I'd like to convert the barn myself and live in it as in the second scenario.
The barn was built for the small holding business at a cost of £40K in 2012. The the value is now appox. £200K with planning permission not converted. I'd like to do the conversion (costs ~£150K) then live in it as my house for about 2 years, then sell it - (approx value £450K)
What would be the best way to minimise CGT ?
I guess CGT would be 450 minus (40+150) = 260 capital gain
Then 260 x 0.67 = 174.2 (x 0.67 because 4 years as barn, then 2 years as my house)
174.2 x 28% = ~49
Then 49 minus 22.2 = ~ £27 K CGT to be paid (22.2 is my own and my wife's CGT allowance). Very rough working out !

Is there a way to reduce CGT ? Create my own property development company and sell the undeveloped barn to it, then buy it back when converted ? Then there will be stamp duty to pay, also anti avoidance issues ? Also Tax on development company profit.
Any ideas on the best way forward

Thank you in advance,

John

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By Duhamel
19th Jul 2015 14:13

Broad questions
John, you have asked some very broad questions. I think you should see a local accountant and take paid for advice.

You also made a mistake on the CGT calculation, your annual exemption is deducted from the gain before calculating CGT, not after. You don't mention if you and your wife are higher rate payers, so part of the gain could be at 18%.

I'm not so sure that the barn has to be sold to the same purchaser but otherwise, I agree with Satwaki.

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By John Bai
21st Jul 2015 13:08

Barn conversion CGT
Thank you Duhamel. It's been useful for me to get a very basic understanding, but it seems the devil is in the detail. I'll seek some paid for advice.
Just need to find a local accountant with the expertise now. (I'm in Macclesfield, Cheshire, anybody help ?)

Thanks again,

John

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By Duhamel
21st Jul 2015 14:36

I'm not local but...
I have taken the liberty of sending you a PM.

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