Budget heralds mixed bag for farm businesses
There has been both good and bad news for farmers in the “tough but fair” Budget announced by chancellor George Osborne today (22 June).
His focus on reducing public spending over tax rises (VAT aside) meant that some areas many rural financial experts had feared would come under the axe have escaped relatively lightly, for now. What impact the proposed 25% departmental cuts will have on agriculture remains to be seen, though.
“Overall, the Chancellor has made some good decisions, with no particular sector bearing the brunt of tax increases,” said Andrew Arnott at Saffery Champness chartered accountants. “Landowners and farmers will remain relatively unscathed with perhaps the reduction in the Annual Investment Allowance being the major issue.”
The AIA will be reduced from £100,000 to £25,000 from April 2012 and the write-down allowance for plant and machinery also cut to 18%.
“The AIA reduction is certainly not welcome and means that most farmers who buy a tractor or combine will be worse off,” said tax consultant Carlton Collister. “Those medium-sized farm businesses that buy a new piece of kit every three to five years will be worst affected.”
Cuts to the AIA came as the Agricultural Buildings Allowance was due to be abolished from next year. “Despite what they say, it does appear that the government favours a service-based industry over a manufacturing-based one,” suggested Mr Collister.
A hike in Capital Gains Tax was widely expected before today’s Budget, but the actual increase from 18% to 28% for higher rate taxpayers was not as much as the 40% or even 50% mooted by some commentators.
“The rise to 28% is far less than people had feared and is likely to maintain, if not increase, interest in investment in land, as a means of having wealth in a secure asset,” property expert Hugh Fell of George F White said.
“In the coming weeks we will see more property coming onto the market from those people who have been holding back on selling their land until after this Budget.”
But Ian Bailey, head of Savills rural research, said the rise in CGT to 28% would not affect the land market. “We anticipate supply for the year will be tight – probably under 100,000 acres. This tight supply will support values and we are sticking to our growth forecast of 5-6% for the year.”
Claire Harris, a solicitor at Withers LLP, added: “The fact that The CGT will increase from midnight tonight will most likely prevent a large surge by those owning second homes or land standing at a gain from bringing property to the market to avoid an increased CGT bill.”
Entrepreneurs’ tax relief was increased from the first £2m of qualifying gain to the first £5m being taxed at 10%.
Sean McCann, NFU Mutual personal finance specialist, said there was some further good news for farming companies as the Corporation Tax rates for small businesses were cut to 20% from 1 April 2011 and tax benefits for farmers providing furnished holiday lets were preserved. But the government has said it will continue consultation around the future of FHL rules, so future changes cannot be ruled out.
Below is a summary of the main points relevant to farmers that came out of today’s Budget. You can read about the Budget as it happened and the initial reactions from our team of experts by clicking here.
Positives
• The annual exempt amount for CGT will continue to rise in line with inflation and will remain at £10,100 for 2010/11
• Increase in the entrepreneurs’ relief lifetime limit from £2 million to £5m
• Reduction in the main rate of corporation tax from 28% to 24% over four financial years from April 2011
• National Insurance Contributions threshold raised by £21 a week above indexation in April 2011
• No tax on landlines. Instead the government plans to drive private sector investment in super-fast broadband by making regulatory changes. Government to fund three pilot schemes to bring fast broadband to hard-to-reach areas
• No increase in fuel duty. Government considering a fuel duty discount in remote rural areas
• The personal allowance for under 65s will be increased by £1,000 to £7475 in 2011-12
• The basic rate limit for income tax will be frozen in 2013-14
Negatives
• Departmental spending cuts of around 25% to be announced in October
• Increase in standard rate of VAT from 17.5% to 20% from 4 Jan
• Capital Gains Tax will be increased from 18% to 28% for higher and additional rate taxpayers
• Reduce the Annual Investment Allowance from £100,000 to £25,000 from April 2012
• Reduce the capital allowances main rate from 20% to 18%, and the special rate from 10% to 8% from April 2012