The pitfalls of leasing quota
RETIRING dairy farmers looking to lease out their milk quota as a form of pension should beware of the consequences.
For a start, they should recognise that quotas may have a limited shelf life and could be abolished altogether in the next three to eight years.
Then there are the tax implications. "The problem is, quota can have a huge capital gains tax liability," says tax specialist Carlton Collister of accountants Grant Thornton. "If it is leased out, it no longer counts as a business asset and therefore does not qualify for retirement relief."
To get this benefit the capital gain has to be "crystalised" – normally achieved by selling the quota.
But it is still possible to derive a leasing income and preserve the CGT relief, says Mr Collister. "You have to generate a disposal. This can be achieved by passing it on to the next generation – either by gifting it or selling it at a reduced value – or else placing it in a trust."
The quota can then be leased out and the earnings used to provide a pension. But while the CGT relief may have been preserved, tax will still be due on the lease income, adds Mr Collister.
Carlton Collister: Possible to lease quota and avoid CGT.