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HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
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Europe: milk quota: sales of quota: introduction

A producer will usually dispose of all or part of their quota permanently by selling it to another producer.

Sales to other producers:

As quota is identified by reference to a particular holding of land which is used for milk production, the arrangements for any permanent transfer of quota from one producer to another must involve a transfer of all or part of the first holding as well.

The mechanics of transfer:

A transfer of quota can be achieved by the sale of a small parcel of land forming part of the first holding to which the quota is attached. More commonly, however, it is effected by granting a short-term lease or grazing let over this parcel of land. The terms of the lease will preclude the use of the land for milk production so that it does not become part of the second holding. When the lease expires, the land reverts to the vendor but the quota remains with the purchaser having become attached to part of their existing holding.

As the parcel of land must be occupied during the period of the lease, there will often be a side-agreement whereby the purchaser authorises the vendor to do so as their agent. It was a failure to occupy the land which prompted the challenge to the transfer of the quota in Regina v MAFF ex-parte Cox.

The transfer should be reported to the Rural Payments Agency (RPA).

Landlords and tenants

A producer who is a tenant farmer will require the consent of their landlord before they can dispose of their quota. The landlord may demand payment for giving that consent. In such cases, the tenant is allowed to deduct the payment to the landlord in computing any gain on the disposal of the quota. In the landlord’s hands, the payment is a capital sum derived from an asset, TCGA92/S22.

The CGT charge

A disposal of milk quota will give rise to a chargeable gain, or in exceptional circumstances, an allowable loss. A disposal of quota may qualify for rollover relief, TCGA92/S152 & TCGA92/S153 and you should refer to the appropriate guidance. A disposal of quota is not treated as a disposal or part-disposal of either land or goodwill.