I advised a farming partnership on the availability of ER for the sale of the greater part of their farm. They had ceased dairy farming a couple of years prior and had decided the sell the land and farm buildings. The farm also included about 30 acres which was prime development land for which planning permission was expected to be obtained, which was not part of the proposed sale. Arable farming had continued on that land. ER is available for a ‘material disposal’ of a business or part of a business or of an asset used for the purposed of a business at the time the business ceases. ER is not available for disposals of business assets sold other than as a business or part of a business or prior to cessation of a business, or which fall into the category of an ‘associated disposal’ i.e. associated with a material disposal such as property used by a partnership or company but held personally by the partners/shareholders. The problem which arose was whether the sale of the greater part of the farm would be regarded as the disposal of part of a business.
There have been a number of tax case decisions on what constitutes part of a business and the position was complicated by the fact that farming on the land up for sale had ceased when dairy farming ceased. Although farming continued on a small scale on the rest of the land, having considered the case law precedents I felt that it would be difficult to argue that the sale was of part of a business (there is no requirement that the purchaser should carry on as a business). It might have been possible to have argued that the farming business had ceased when dairy farming had ceased in which case a sale within three years of cessation may still qualify for relief. However, given that the sale was for a six-figure sum and so the loss of ER was a major drawback, it was decided to cease farming the rest of the land in which case the sale fell within the category of a ‘material disposal’ of an asset used in a business (i.e. the farm as a whole) at the time the business ceased. This solution therefore enabled ER to be claimed on the gain arising on the proposed sale and if the remaining 30 acres were sold within three years ER might also be available for that disposal.