Over the years, many of our clients have lost land under Compulsory Purchase Orders (CPO’s) for transport infrastructure projects such as the M40, A43 improvements and A14. Now many are affected by HS2, the Huntingdon bypass and the East West railway.
Situations differ, but we find many farmers wish to claim Rollover Relief to avoid paying Capital Gains Tax on the compensation received. This is achieved by reinvesting all of the compensation into new assets, such as land. Please note where not all of the compensation is reinvested, the relief is restricted.
With a CPO a wider range of new reinvestment assets can qualify for Rollover Relief, for example, let land and buildings can qualify.
Currently, landowners can claim Rollover Relief on new assets as long as they are acquired between one year before and three years after the sale of the old asset. HM Revenue and Customs (HMRC) have recently confirmed that (at their discretion) landowners affected by compulsory purchase may have longer to rollover the capital gain, extending the time limit to three years before disposal and six years after.
This is very welcome news as landowners affected by compulsory purchase often find strong competition for farmland near large compulsory purchase schemes, making it difficult to find suitable replacement land within the timeframe.
It can also takes years for compulsory purchase compensation to be negotiated. The effective date of disposal is when the compensation is finally agreed. This affects the time limits for reinvestment (see example 1).
Examples where HMRC discretion could be available (but not guaranteed) include:
- Land is lost to HS2 in late 2017, with replacement land bought in 2018 but the compensation not agreed until 2027, or
- Land sold in 2015 but compensation only agreed in 2017 and replacement land not acquired until 2022.
Each case will be determined on its own merits. We always advise clients looking to extend their rollover period to retain proof of attempted purchases over the years e.g. offers in writing and instructions to agents, as evidence to present to HMRC. Provisional rollover claims can be made if reinvestment is likely, but not made by the time the tax is due.
Please note that HMRC discretion also applies to Rollover Relief claimed under normal circumstances, where there is a valid reason that land could not be disposed or acquired within the usual time frame.
There are many potential pitfalls within the detail of Rollover Relief legislation. Please get in touch if you are looking to sell land or are affected by a Compulsory Purchase Order. We would be pleased to advise on your specific position.