Farming and capital gains tax: Navigating the latest guidelines

16 Jun 2025 | Tax

Capital gains tax (CGT) rarely makes the farming headlines, yet it shapes almost every decision about when to sell land, how to pass a holding to the next generation and which business structure will stand up to market shocks. Farming businesses face a double exposure: land values keep edging higher, and most enterprises hold assets far longer than other sectors. Enclosed farmland already covers half of the UK’s land mass (ONS, 2024), so when farming and capital gains tax policy shifts appear, the impact reverberates across rural communities.

For the 2025/26 tax year, the annual exempt amount for individuals is now only £3,000 while most residential gains above the basic-rate band attract 24% tax (HMRC, 2025). At the same time, HMRC collected £47.6 billion from Income Tax, CGT and NICs in April 2025 alone – £2.8 billion more than the previous year – signalling closer scrutiny of disposals (HMRC, 2025). Against that backdrop, farm owners need practical guidance rather than generic tax commentary. This article explains the rule changes, highlights reliefs still available and sets out actions to keep unexpected liabilities off the balance sheet.

Why CGT bites harder on farmland

  • Long ownership periods: A field bought for £1,800 an acre in the 1990s might fetch over £8,200 today (Savills, 2024) – gains of that scale dwarf the new £3,000 allowance.
  • Asset-rich, cash-light models: Profit margins can lag well behind notional capital growth, so funding the tax from cashflow is often difficult.
  • Emotional value: Selling even a modest paddock can compromise succession plans and neighbour agreements.

Farming and capital gains tax rules for 2025/26

Key headline rates

  • 18% on gains that fall within your basic-rate income band (this single rate now applies to all chargeable assets, including farmland and residential property). (gov.uk)
  • 24% on gains above the basic-rate income band. (gov.uk)
  • Trustees and personal representatives: a flat 24% on all gains. (gov.uk)
  • Annual exempt amount (AEA): £3,000 for individuals and personal representatives; £1,500 for most trusts (or £3,000 if the trust’s only beneficiary is vulnerable). (gov.uk)

Notes for farmers:

  • Farmland is treated as non-residential property, but because the main and residential rates have now converged, the 18%/24% bands cover it in any event.
  • If your disposal qualifies for Business Asset Disposal Relief, the first £1 million of lifetime gains is taxed at 14% from 6 April 2025 (rising to 18% from 6 April 2026). 
  • Gains realised between 30 October 2024 and 5 April 2025 may need to be split between the old and new rate periods; HMRC provides an online calculator for this.

Reliefs still worth exploring

  • Business Asset Disposal Relief: Lifetime limit remains £1 million at 10%. Qualifying criteria hinge on trading status – so review contract-farming and grazing licences before exchange.
  • Rollover relief: Gains on compulsory purchase or a sale followed by reinvestment in qualifying land within three years can be deferred. Evidence of intent – board minutes, professional valuations – is essential.
  • Gift Hold-Over Relief: Vital for parents gifting land to farming children. Obtain a professional valuation on the day of transfer to future-proof the claim.
  • Incorporation relief: Moving a partnership into a limited company shifts latent gains into shares. Works best where borrowings do not exceed base cost plus indexation.

Structuring land holdings for resilience

  • Separate trading from investment assets: Ring-fencing non-core let cottages in an investment company means future share sales may qualify for BADR while rental gains sit outside the farming ring-fence.
  • Consider a hybrid partnership: Bringing adult children in as partners spreads gains and uses multiple annual exemptions each year.
  • Review borrowing: Rollover relief cannot exceed the proceeds actually reinvested. High gearing can erode the relief, so revisit loan terms ahead of a planned sale.

Passing the baton – succession and family trusts

With land inflation running ahead of CPI, many farmers find that potential CGT and inheritance tax (IHT) together can exceed liquid assets. Aligning the two regimes can soften both bills:

  • Use Hold-Over Relief when gifting land that will qualify later for agricultural property relief (APR) from IHT.
  • Establish a discretionary trust for minor children: it banks an extra £1,500 annual exemption and locks in today’s land value for future reference.
  • Pair APR and Business Property Relief. Where land is used in the business but owned outside the partnership, APR may cover the land and BPR the shares – reducing both CGT on gift and IHT on death.

Action checklist before the next disposal

  • Update partnership agreements: Confirm percentage holdings match HMRC records.
  • Reconcile base cost schedules: Indexation applies only up to 5 April 1998 for corporate owners.
  • Collate enhancement expenditure: Drainage, livestock buildings and environmental schemes can all increase base cost if evidenced.
  • Time disposals: Spreading contracts over two tax years restores a second £3,000 allowance.
  • Obtain professional valuations: We recommend a RICS Red Book report for any transfer between connected parties.
  • Review environmental agreements: Disposals that break stewardship contracts can claw back payments – factor this into the net gain calculation.

What next?

Farmers have always taken the long view. Yet the 2025/26 CGT changes convert what once felt like a distant risk into an immediate line item. Careful documentation, sensible structuring and early dialogue with advisers can stop a profitable land sale turning into a funding crisis. Our team has spent more than 50 years guiding Scottish and UK farmers through tax reform, subsidy upheaval and family succession. We combine local insight with rigorous technical knowledge, so you receive advice that works in practice as well as on paper.

If you would like a confidential review of your plans around farming and capital gains tax, get in touch with our team today. We will map out tailored options and quantify the savings before any contracts are exchanged. Contact us today to protect your farm’s future.