Tax relief on property is discussed in the Financial Times this morning, as one reader poses the question – “If I convert a barn on my farm estate into a house for my son to live in, can I claim tax relief on the conversion?”
Tom Trewby advises that costs cannot be offset against farming income, but significantly, costs can be deducted when calculating capital gains when the property is sold. Tom points out that on a family farm, joint ownership of the barn by a husband and wife means that the annual exempt amount for both spouses can be taken into account when reducing capital gains tax on the gift of the barn to the son.
Inheritance tax is another major consideration. The property is no longer being used as part of the farming business so it will not qualify for agricultural property relief or business property relief. However, if the farmer’s son is working on the farm there may be some exceptions. Nevertheless, the estate will be exposed to inheritance tax if the owner dies within 7 years of gifting the barn to his son. Therefore, it may be worth considering life insurance to cover the potential tax liability.
If the farmer gave the barn to his son before it is converted, the value of the property would be at a lower pre-conversion rate when calculating inheritance tax and capital gains tax.
Read more about the consequences of the conversion on VAT and Stamp Duty Land Tax……View the full article here