Farmers in the process of selling up their business or hoping to do so are likely to be stung by the huge cut in entrepreneurs’ relief announced in the Budget.
Entrepreneurs’ relief has offered many farmers and landowners the opportunity to sell up large assets, with a lifetime allowance on capital gains of up to £10m, but a shake-up in the Budget on 11 March has seen this slashed to just £1m, with immediate effect. “Any contracts that are exchanging as of now on qualify disposal of farms or developing land could potentially see a large increase in their tax liability,” warns Catherine Vickery, associate director at Old Mill financial experts. “It’s really going to impact on those selling land for development and includes any land acquired under a compulsory purchase order.”
However, there is still a £1m allowance, meaning the first £1m of capital gains will incur tax at 10%, while anything above that will be 20%, says Mrs Vickery.
“For those selling land, there is still the option of rolling over the capital gain by reinvesting the money. This will be a more attractive option to farmers now as it will save them money,” she adds.
On a more positive note, the cut in interest rates from 0.75% to 0.25% is likely to benefit anyone with considerable borrowings on a variable rate of interest. “Though this has been introduced to help with the outbreak of Covid19, those with the biggest borrowings are going to benefit the most,” explains Mrs Vickery.
“For example, if you have borrowed £1m, you will save £5,000 a year in interest based on the cut – which could help considerably.”
The cut in interest rates may ease cash flow for businesses and offer up an opportunity to invest. “The Structures and Buildings Allowance has been increased from 2% to 3%, meaning anyone putting up new buildings, or doing conversions and improvements, will have extra money to offset for tax purposes or could wipe out the interest paid on borrowing,” says Mrs Vickery.
“If you invest £100,000 in the project and receive £6,000 in rent on the building, you get £3,000 to offset for tax purposes, meaning only £3,000 of the rent remains taxable. Or, if you borrow for the project and pay 3% interest, this could be wiped out under the 3% allowance – meaning the income is tax free,” she explains. “This could really tip the balance for some people and make a project worth considering.”
For farmers with diversified ventures, further exemptions to business rates will aid leisure and tourism. “This will cover a number of different industries, but could include guest houses, caravan parks, restaurants and retail, meaning a sizeable tax relief for many,” says Mrs Vickery. However, this only applies to premises with a rateable value of less than £51,000.
The National Insurance threshold has also been raised to £9,500 for employees and the self-employed, meaning approximately an extra £100 per person each year.
The Chancellor also introduced a new plastic packaging tax, meaning anyone manufacturing or importing over 10t of plastic a year will have to pay £200/t tax on any plastic that contains less than 30% recycled material. “However, this is not coming into force until April 2022.”
One win for farmers in the Budget was the announcement that the agricultural relief on red diesel will remain in place, adds Mrs Vickery.
Small businesses – with under 250 employees – will also be able to claim a refund on statutory sick pay for those affected by Covid19 the first 14 days of sickness, and statutory sick pay will now be paid from day one, she explains.
“The Budget had a number of notable updates for farmers, and though the reduction in entrepreneurs’ relief could negatively impact many, there are options, such as rolling over capital gains,” says Mrs Vickery. “The increase to the Buildings and Structures Allowance, drop in interest rates and the new exemptions to business rates could provide opportunities and much needed relief for many.”
- For more information contact Catherine Vickery on 01749 335035.