Instead, the gain is ‘rolled’ over into the base cost of the new asset, effectively deferring the capital gain until the new asset is sold.

Example:

Farmer A sold a farm, which he farmed himself, for £10,000,000. He originally acquired the land for £500,000, therefore has a capital gain of £9,500,000, on which he would pay tax of up to £2,280,000 (we will assume the farmer has already utilised his business asset disposal relief lifetime limit for this example).

However, he then acquires new farmland for £12,000,000, the year after the sale. In this case, all of the previous gain can be rolled over into the cost of the new asset.

The base cost for the new farm (i.e. the amount that he can deduct on a future sale of the new farm) then becomes £2,500,000 (i.e. the amount he paid for the new asset of £12,000,000, less the capital gain he deferred of £9,500,000).

There are some conditions to this, including:

• The reinvestment must be made within one year before or three years after the sale of the old asset
• Both the old asset and the new asset must be trading assets (i.e. land or property rented out do not qualify)
• Restrictions to the relief apply whereby you only reinvest part of your proceeds, or the old asset was only used partly for trading (e.g. if part of the land was rented out, an apportionment would be required)

The benefits of reinvesting into new farming assets were previously twofold:

1. The capital gains rollover relief element mentioned above
2. The new trading asset could qualify immediately for 100% Inheritance Tax (IHT) relief under the ‘replacement asset’ Business Property Relief (BPR)/Agricultural Property Relief (APR) rules

BPR and APR are currently 100% Inheritance Tax reliefs that applies to certain qualifying assets such as farms. Usually, the taxpayer must own an asset for two years to qualify for relief. However, where an asset is replacing a previous asset which also qualified for relief, this two-year ownership requirement is relaxed.

However, from April 2026, these reliefs are changing significantly, with the 100% relief being restricted to the first £2.5m of combined business and agricultural property per person, with a reduced rate of 50% applicable to the excess.

Using the example above, even if farmer A is married (such that they can utilise their spouses £2.5m allowance too), that would still leave a potential Inheritance Tax exposure of £1,400,000 (£12m farm less two BPR allowances of £2.5m each, x 20%).

These changes may therefore lead to taxpayers reconsidering their investment opportunities, particularly with yields on farmland being significantly lower than some other investment opportunities.

Whilst an immediate CGT ‘saving’ can seem like an attractive option, this should be weighed up with the lower returns that may stem from that, compared to suffering the CGT, and exploring other investment opportunities with higher returns.

Rickard Luckin Financial Services are well experienced with advising on reinvestment opportunities, and work closely with our Tax Team to find the right solution following a sale.

Discover how we can support you by visiting rickardluckin.co.uk/financial-services