Farmers forced to sell land for roads and HS2 to receive less after capital gains tax raid

Farmers who are forced to sell their land for new transport links and housing face receiving less compensation following Rachel Reeves’s capital gains tax raid.

Landowners hit with compulsory purchase orders will be stung by more capital gains tax on their payouts after the Chancellor almost doubled the basic rate.

As a result, some farmers who have not been compensated for projects announced before the election, such as HS2, are set to receive less than they expected.

It comes after fury over Ms Reeves’s decision to impose a “tractor tax” by cutting the amount of inheritance tax relief available when passing on farms.

In the Budget, the Chancellor increased rates of capital gains tax, which people pay on the profit they make when selling an asset such as land or property.

The move will affect farmers who have their land forcibly bought under compulsory purchase orders to make way for major new national infrastructure.

Angela Rayner, the Deputy Prime Minister, has unveiled plans to make wider use of the orders to secure land for a wave of new towns.

It will also hit some landowners who were subject to orders before the election, but who are still in negotiations about how much compensation they will receive.

Andrew Williams owns a farm in Cambridgeshire, part of which was compulsorily purchased almost 10 years ago for the construction of a new A14 bypass.

He said: “National Highways are now in the process of finalising the compensation payment, which will be subject to capital gains tax at the new rate and income tax.

“The Government took our assets and will belatedly conclude payment with a sum which is, after tax, considerably less than the compensation agreed seven years ago. How can this be fair?

“Compulsory purchase is necessary to build our country but, in a civilised society, surely those affected should receive 100 per cent of the agreed valuation within two years of the bulldozers going in.”

Mr Williams, who received a standard 90 per cent upfront payment based on the estimated value of his land, said many neighbouring farmers were in the same position.

Under the current rules, the rate of capital gains that landowners are charged is based on when their compensation payment was agreed.

When a compulsory purchase order is made, the authorities typically take control of the land concerned first and negotiate the price later.

That process can take several years, meaning some farmers who had their land bought to make way for projects such as HS2 have not yet settled.

National Highways confirmed that there are still a number of cases relating to the A14 bypass where compensation has not been agreed.

HS2 said that 70 per cent of its forecast amount of money on compensation has been paid out to date, with the remaining 30 per cent of claims yet to be settled.

Ms Reeves’s Budget almost doubled the lower rate of capital gains, which is paid by basic rate taxpayers, raising it from 10 per cent to 18 per cent.

The upper rate, paid by higher and additional rate taxpayers, went up from 20 per cent to 24 per cent, with the changes coming into force immediately.

Farmers who are subject to compulsory purchase orders can avoid having to pay capital gains on their compensation if they use it to buy new land.

But if they choose to take the cash or reinvest it in the remaining area of their existing farm, such as in new buildings, they are subject to the tax.

A government spokesman said: “The Budget delivered on our commitment to keep taxes low for working people by not raising rates of income tax, national insurance, or VAT.

“Fewer than 1 per cent of UK adults pay capital gains tax on any type of asset each year. Those who do because of a compulsory purchase order should not be affected by the new tax rates if their compensation was agreed before the Budget.”