Buy or sell land

Most people tend to focus on the legal processes when buying or selling land - but it's also vital that you complete the transaction in the most tax-efficient way - or you could be in for a surprise!

Whether you are selling a part of your garden to a developer or buying a farm or other commercial use, the amount of tax due on sale or purchase will depend on how long you own the land, both as a seller and buyer, and what it is used for. Those same factors decide how much capital gains tax on land you pay, and which reliefs may be available to reduce it.

Understanding the timing of land sales can significantly impact your overall tax position.

Farmland can be treated differently to land sold for residential or commercial building. This includes valuation of agricultural property, potential inheritance tax implications, and the state of agricultural tax reliefs currently in place.

Buying land for an agricultural business opens up different opportunities with the potential for some fairly significant tax savings in the future. There may typically be issues around Inheritance Tax planning, Capital Gains Tax (CGT) and VAT to consider.

Proper succession planning for farms can ensure that assets are preserved across generations and may also support claims for business property relief.

If farmland is involved, the tax due on any sale will also depend on who is doing the farming, what is being farmed and whether there are any buildings involved.

For instance, farming estate planning should take into account both the long-term objectives and the combined relief cap that might apply when claiming different types of reliefs together.

There are also different ways to buy land, and these also will affect the tax you could pay. It can be bought in your capacity as an individual, in a partnership or as a company to name a few examples.

How capital gains tax on land is calculated

Capital gains tax on land is charged on your gain, not the full sale price. In simple terms, the gain is what you receive for the land, less what it cost you and any other costs you are allowed to deduct.

Allowable costs usually include:

• the price you paid for the land, or its value when you received it if it was a gift, an inheritance or owned before April 1982
• costs of buying it, such as legal fees, survey fees and Stamp Duty Land Tax
• costs of selling it, such as agents’ and solicitors’ fees
• improvement costs that add value to the land and are still reflected in it when you sell

Improvements need care. Work that adds something to the land, such as a new access road, drainage or a building, can usually be deducted. Routine maintenance and repairs cannot. Keep invoices and records from the start, as you may need them years later.

If you sell only part of your land, you cannot deduct the whole original cost. Instead, a share of it is allocated to the part you sell, based on its value compared with the land you keep.

CGT rates and allowances for land

Individuals pay capital gains tax on land at 18% or 24%, depending on their income. Gains that fall within your remaining basic rate band are taxed at 18%, and anything above it at 24%. The same rates apply to residential and non-residential land. Trustees and personal representatives pay 24%.

Each individual has an annual exempt amount of £3,000 for 2026/27, so the first £3,000 of total gains in the tax year is tax-free. Couples who own land jointly each have their own exemption and basic rate band.

Companies are treated differently. A company that sells land pays Corporation Tax on the gain instead.

Reliefs that can reduce CGT on land

Business Asset Disposal Relief (BADR) taxes qualifying gains at 18%, up to a lifetime limit of £1 million. For land, it can apply when you sell all or part of a trading business, including the land it uses, or when you sell land you own personally that your business uses, alongside a qualifying disposal of your interest in that business. The conditions generally need to be met for two years before the sale. Because the BADR rate is now the same as the basic rate of capital gains tax, the saving mainly benefits higher and additional rate taxpayers, whose gains would otherwise be taxed at 24%.

Gift Hold-Over Relief lets you give away business assets, including land used in your trade, without paying capital gains tax at the time. The gain passes to the person receiving the land, who pays it when they later sell. Farmland that qualifies for Agricultural Property Relief can also qualify, even if you do not farm it yourself. The relief is claimed jointly with the recipient. If you sell the land for less than its market value, it can still apply, but only to part of the gain.

Selling part of your garden to a developer

This is not always straightforward. A sale may be tax free to a homeowner, but not always.

There can be Capital Gains Tax to pay, depending on the size of plot and whether the land has been used for anything other than what HMRC defines as a ‘domestic garden’.

Private Residence Relief can cover the sale of garden land, but only if certain conditions are met. The land must be part of the garden or grounds of your main home and used for its enjoyment, not for a business, letting or other purposes. Relief applies automatically to grounds of up to half a hectare, including the site of the house. Larger areas only qualify if they are needed for the reasonable enjoyment of a house of that size and character.

Timing matters too. The garden land must be sold before or at the same time as the house. If you sell the house first and the land later, relief on the land is lost.

When purchasing land, what is the land is used for will also affect the Stamp Duty Land Tax implications in what can be a complex calculation.

In some instances, a development land CGT overview may be beneficial to fully understand your obligations and relief opportunities.

Farm businesses

There are ways to structure the sale of land held by agriculture business that allows the Capital Gains Tax liability to be rolled over if more land is bought. But this is not always a deferment worth making: future market conditions may make the tax bill tougher to pay, or the money owed may adversely affect your future tax planning.

For Inheritance Tax, Agricultural Property Relief (APR) can reduce the value of farmland, farm buildings and farmhouses that pass on death or are given away, but only on their agricultural value. Business Property Relief (BPR) can cover other assets of a farming business, and in some cases value above the agricultural value, where the business qualifies as a trading business.

From 6 April 2026, 100% relief is limited to the first £2.5 million of qualifying property across APR and BPR combined. Value above that receives 50% relief, which works out at an effective Inheritance Tax rate of 20%. Any unused allowance can pass to a surviving spouse or civil partner. Reviewing ownership, valuations and succession plans now can help families make the most of the cap.

There can be additional costs to buying land, such as auction or agent fees, to consider.

The two other typical land sale methods are:

• An option agreement with a potential buyer to purchase at an agreed price, but subject to necessary consents for change of use.
• A promotion agreement where a fee is paid for promotion on the open market. This will involve paying VAT on the fee owed.

We can assist with farming estate planning and navigating tax implications across all aspects of land ownership and sale.

If you are looking to buy or sell land and would like some expert guidance, contact us to arrange to speak with one of our specialists in London, Kent or Sussex.

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