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Is the sale of inherited agricultural land exempt from CGT?

Tuesday, 14 April 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: I need to know if there is any relief on an inheritance of an agricultural property (i.e. land) in terms of STC and CGT due to the only intention of forming a company was due to ownership.

3 siblings inherited an agricultural property but were told that due to the fact that it is land, they need to register a company because land cannot be owned by more than one individual. As result they formed a company and sold the property which obviously created CGT as well as STC.

A: You are referring to the Subdivision of Agricultural Land Act, 1970 (section 3 - no undivided share in agricultural land not already held by any person, shall vest in any person).  We accept that the heirs accepted the shares in the company in lieu of their respective interests in the farm. 

We are not sure why you refer to STC as that tax was replaced by the dividends tax with effect 1 April 2012.  Our guidance assumes that the transaction (disposal of the farm) took place after 1 April 2012.  If not, we need to know when the farm was sold to provide the guidance. 

We assume that when you say ‘sold the property’ you are referring to the sale by the company of the property. 

With regard to the capital gain in the company we need to know whether or not the farm was brought into the company by way of loan account or equity shares.  The base cost of the farm would be the same for the company as it was for the individuals.  We assume the deceased died after 1 October 2001.  As the farm was held on capital account by the company a capital gain will arise and you are correct that any distribution of the taxable capital gain after deducting the normal tax will be a dividend subject to the dividends tax. 

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision. 



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