Beware the tax man, farmers are warned ahead of A1 dualling

A1 road between Alnwick and Morpeth.
A1 road between Alnwick and Morpeth.

Many farmers and landowners in the North East are facing compulsory purchase orders as the region’s road network is improved and expanded – in particular, those alongside the A1 in Northumberland.

For the A1 dualling scheme, proposed route options have been published and further consultation will be taking place later this year.

While the necessary land transfers generate compensation, what many are not aware of is that this gain comes with the potential downside of a large tax bill.

Graeme Bruce, head of the Alnwick office of YoungsRPS, said: “Even if an unwilling seller, compulsory purchase payments will attract capital gains tax (CGT), currently charged at 28 per cent, which will be liable on the difference in value between the compulsory purchase payment and the acquisition cost of the land in question (or the 1982 base value). This should therefore be taken into account during negotiations.

“On top of this, stamp duty will be payable on any replacement property purchased and such transactions can also create VAT issues which need addressing early on.”

“It is possible to mitigate CGT liabilities, but this would need to be looked at in the context of the business as a whole.”

He added: “With this in mind, we would strongly recommend getting a tax adviser involved at an early stage of negotiations so that the timing of disposals can be considered and a tax mitigation strategy put in place.

“Compulsory purchase is a complex matter and it is vital that farmers and landowners consider the full impact from all angles, and not just the more obvious.

“We are currently acting for a number of clients with businesses affected by the dualing of the A1 in Northumberland. For these farmers, the impacts of the scheme will reach far into the future.”