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Application of BADR to possible sale of trading assets.
A farming partnership is operated through a contract farming arrangement, and we are content this is structured such that the partnership would be regarded as ‘trading’ for business asset disposal relief (BADR) and it has been in place for more than two years.
The contract farming arrangement is coming to an end at the end of this year, and for the entire 2025 calendar year, the farm will be let out. It is expected that another contract farming arrangement, which will be ‘BADR compliant’, will be entered into from the beginning of 2026.
There is an intention to sell the farm and depending on when this happens, our concern is whether the ‘two year trading’ requirement will have been met.
If the current contract farming arrangement comes to an end on 31 December 2024, and the farm is sold on, say, 31 December 2026, the replacement contract farming arrangement, which commenced on 1 January 2026, will not have been in place for two years.
Our questions are: can the capital gain that will arise on the disposal of the farm assets on 31 December 2026 be regarded as relating back to the cessation of the original contract farming arrangement on 31 December 2024 and because the disposal has taken place within three years, BADR will be available, even though another contract farming arrangement started on 1 January 2026? Or would the analysis be that notwithstanding the break in trading during 2025, the same trade can be regarded as effectively continuing throughout, operating through two contract farming arrangements, with a dormant period during 2025, and so BADR would be available at 31 December 2026?
If neither of these two propositions are robust to achieve BADR on a disposal on 31 December 2026, could the terms of the replacement farming contract be structured so that it would not be ‘BADR compliant’ but still, in practice, operate as if it was? This would mean a new period of trading did not start on 1 January 2026 and, so, presumably ensure a disposal on 31 December 2026 could be related back to the cessation of the original farming contract on 31 December 2024.
Could BADR be obtained?
Query 20,391 – Perplexed.
Should my client be in self assessment?
One of my clients is a retired practising accountant. He is not currently a self-assessment (SA) case although he does receive state and private pensions and also has savings income. When considering whether an individual should file SA returns, the HMRC questionnaire poses a number of fairly straightforward questions (questions 1 to 5).
In this case, the client receives income of less than £50,000 a year, some of which is private and state pensions. However, he does have investment income.
Question 6 on the HMRC website checker asks: ‘Did you get more than £10,000 from dividends or savings and investments?’. It then goes on to state that income from savings and investments includes savings interest, except for ISA interest, and also money from bare and interest in possession trusts. However, the ‘yes’ answer indicates that either, ‘yes, I got more than £10,000 from savings and investments, or more than £10,000 from share dividends’. Does that therefore mean that if somebody receives £9,000 from savings and investments, and, say, £3,000 from dividends, that they do not have to register for self assessment?
I’m confused because dividends seem to be treated distinctly from other savings and investment income.
Could readers share their views?
Query 20,392 – Partridge.
Part appointment of QIIP assets.
A qualifying interest in possession (QIIP) was settled in 2001; the assets comprise 100 shares in a former trading company containing cash of £1m. The beneficiaries of the trust are: the settlor, their spouse and their descendants. The income of the trust fund is to be paid to the settlor during their lifetime; devolving to the children following the death of both spouses. The trust deed includes powers to appoint assets to either the beneficiaries or a new settlement (including a discretionary settlement).
The settlor is concerned about their IHT exposure and it has been proposed that 40 of the shares (having a value of, say, £325,000) are appointed to a discretionary settlement in favour of the settlor’s children and descendants. It appears that a charge will arise under IHTA 1984, s 52; the exemptions under s 53 do not appear to apply; and that holdover relief would be available under TCGA 1992, s 260.
Can readers offer any alternatives? Query 20,393 – Untrusting.
Is VAT due on profit share for joint venture agreement?
One of my clients is a builder and his company has formed a joint venture (JV) agreement with another company that owns a plot of land. My clients will get planning permission on the land and do all the building work so that the JV can build and sell 12 new houses, sharing profits on a 50/50 basis.
My questions are: 1) presumably the JV can register for VAT and claim input tax on professional fees and building materials? The labour will be zero rated so there is no input tax to claim here; and 2) when the project has been completed, it is expected that my client’s profit share will be £750,000. Should his company issue an invoice for £750,000 plus VAT to the JV or is it outside the scope of VAT? Query 20,394 – Speculator.
Queries and replies
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