Emergency Budget - implications for Agriculture

Following the Chancellors’ Emergency Budget in June 2010, there are four areas that may require your consideration:

Capital allowance rates

With the reductions in tax allowances from 1 April 2012, you may be reconsidering your capital expenditure plans. The annual level of spend that achieves 100% tax write off in the year of expenditure decreases to £25,000 which, for the modern farm, is now only barely enough for heavy cultivation equipment, and no where near enough for a new drill, tractor, combine and self propelled sprayer.

The change may also see a switch of financing away from purchase to the various hiring schemes to achieve higher tax relief.

Capital Gains Tax

For disposals after 22 June we now have, effectively, three capital gains tax rates:

  • 18% on gains to the extent that, when added to your taxable income they are within the basic rate band upper limit (currently £37,400)
  • 28% on gains to the extent that, when added to your other taxable income, they exceed that basic rate limit, and
  • Overriding both of the above, 10% on gains up to £5 million to the extent that Entrepreneur’s Relief is available.

Perhaps more relevantly though for farmers, is the fact that if correctly structured a disposal that will qualify for Entrepreneurs’ Relief will give rise to only a 10% charge, and that that could be worth as much as £900,000 in tax saving.  As the correct structure must be in place at least 12 months before any disposal, you should get a qualifying structure established as soon as possible, and speak to your adviser if you are considering making any disposals.

Furnished Holiday Lets

Finally, the future tax treatment of Furnished Holiday Lets remains unresolved and we still have the “old” rules.

However we have been put on alert that the Coalition is proposing to amend some aspects, namely:

  • increasing the number of days that a property must be let each year, and
  • restricting the income tax relief for losses against other income.

There may be an opportunity to undertake tax planning to take advantage of the reliefs available under the current regime especially if you perceive that you may not qualify under any new regime.

Incorporation?

The Corporate Tax rates, currently 21% and 28% will be reducing to 20% and 24% (albeit that the latter is staggered over 4 years).

Compare that to current personal tax rates of 40/50%, and even 60%, plus 2% national insurance, and we may see a growing interest from farm traders and partnerships regarding incorporating their businesses or parts of it. This may see a continuation of farming businesses being split into a limited company operating the machinery and holding the contracting work, operating alongside the crop growing traditional partnership.

It is not a straightforward decision for many because there may be some trade off in terms of reducing future capital taxes reliefs in order to obtain the current income tax benefit. However, it will certainly be something well worth serious consideration.

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