Landowners to benefit from tax relief extension for compulsory purchase

Landowners affected by compulsory purchase of assets may have longer to roll over the capital gain into other investments, following confirmation by HMRC.

In response to queries by the Central Association of Agricultural Valuers (CAAV), the Revenue has confirmed that it can agree to extend the time limit for rollover relief. This relief allows landowners to defer payment of Capital Gains Tax (CGT) arising on disposal of an asset, by reinvesting the whole gain into other eligible assets, such as land.

“Under normal circumstances, rollover relief is available where replacement assets are acquired within a time window from 12 months before the disposal to three years afterwards,” explains Jeremy Moody, secretary and adviser to the CAAV. “However, HMRC has the discretion to extend these limits, and experience suggests that it is commonly exercised helpfully.”

Although this discretion applies equally to the ordinary form of rollover relief on business assets, the discussion has been prompted by the issues found with major compulsory purchase schemes, such as HS2.

“Landowners affected by compulsory purchase often find that it takes years for compensation to be agreed,” says Mr Moody. “In addition, competition for farmland in the vicinity of large compulsory purchase schemes is strong, making it difficult to find suitable replacement land.” Rollover relief under compulsory purchase situations offers a wider range of land types for reinvestment but does not allow reinvestment in constructing buildings.

While the date of disposal (or acquisition) for CGT and rollover relief is normally when contracts are exchanged, the disposal date for compulsory purchase is when compensation is agreed. “That might not be until long after the acquirer entered onto the land,” says Mr Moody. “That makes these issues particularly acute.”

Mr Moody welcomed confirmation that a delegated officer of HMRC can approve relief where reinvestment is within three years before the disposal to six years afterwards. “They cannot refuse an application but must instead refer cases with longer periods or problems upwards in HMRC.”

Examples where the discretion would be available – but not guaranteed – include where:

  • Land is lost to HS2 in late 2017, with replacement land bought in 2018 but the compensation is not agreed until 2027, or
  • Compensation for land taken in 2015 for the Aberdeen Western Peripheral road is agreed in 2017 but replacement land is not acquired until 2022.

This 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. “Each case turns on its own merits,” says Mr Moody. “However, it is extremely welcome for HMRC to confirm the favourable position it can take to extend the timeframe in genuine cases of compulsory purchase.”

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