Tax breaks on farm buidings to go, government confirms

Farmers who invested in new buildings in recent years face the prospect of thousands of pounds in extra income tax after the government confirmed today that it is to scrap Agricultural Buildings Allowances.

ABAs, which allowed investments in agricultural buildings to be offset against income for 25 years, are to be phased out from April next year and abolished altogether in 2011.

Gordon Brown announced the planned removal of ABAs in his last budget as chancellor in March.

The move, part of the government’s efforts to reform Britain’s corporation tax regime, will hit farmers who made investments in farm buildings expecting to be able to write down the cost of construction over 25 years.

NFU head of tax Kevin Pantling said the move was “very disappointing”. “We made specific representations and it seems no account has been taken of the arguments we put forward.”

For example, the government maintained that tax relief was unnecessary as most buildings affected would appreciate in value. But this wasn’t that case with farm buildings like grain stores or dairy parlours, whose value would only reduce as they wore out through use, Mr Pantling said.

“This will cost the industry tens of millions of pounds over the remaining lifetime of these investments.”

While the government had feted a 2% cut in Corporation Tax, very few farm businesses would benefit from this, he added.

Carlton Collister, senior tax manager at accountant Grant Thornton, said the government’s announcement meant hopes of “grandfather rights” for businesses which had made investment decisions based on existing ABA rules, had been quashed.

While there would no longer be any tax relief available on agricultural buildings, farmers may be able to claim relief at the reduced rate at 10% on “Integral Features”, which now included cold water and electrical provision.

However, from April next year, farmers would be able to qualify for Annual Investment Allowances, which gave 100% tax relief on the first £50,000 of plant and machinery investments, he said.

* Chancellor of the Exchequer Alistair Darling has come under fire for delaying his review of changes to the capital gains tax system in his pre-budget report last October.

Business leaders reacted with dismay to Mr Darling’s plans to scrap business asset taper relief and indexation allowance, ramping up capital gains tax bills on the sale of assets like farmland.

The Chancellor has deferred a decision on capital gains tax until Westminster returns on January 7.

Agricultural Buildings Allowance

• On a £1m investment, relief at 4% means that £40,000 can be offset against income for tax purposes in the first year and the subsequent 24 years, thereby reducing the Income or Corporation tax burden.
• ABAs are set to be phased out over the next four years, so that they will operate at 4% in the current tax year, 3% in 2008-2009, 2% in 2009-2010 and 1% in 2010-2011. After April 2011 it will end.