Act now and reap rewards of current favourable tax laws
By Philip Clarke
FARMERS have a window of opportunity to take advantage of the current favourable tax regime before the general election on May 1.
How long that window stays open thereafter depends on who forms the next government and, if it is Labour, how soon they introduce new legislation, says Jeremy Lewis, senior agricultural partner with accountants Grant Thornton.
Labours intention is to hold a Budget within two months. But it is doubtful whether a new Finance Act could be passed before the summer recess. It is also unlikely that any new tax laws would be made retrospective.
Despite this, Mr Lewiss advice to farmers is to act now and make the most of the current "agriculturally favourable" regime.
"Capital taxation is where there is the greatest uncertainty," says Mr Lewis. "Labour has said nothing concrete about this."
Current reliefs include retirement relief (offering total CGT exemption up to £250,000, and 50% relief up to £1m for the over-50s), and reinvestment relief (where the proceeds of any capital gain are invested in shares in an unquoted trading company.)
Both these are vulnerable to a change of government, says tax specialist Carlton Collister. "Two things are particularly generous with retirement relief – the age at which it is available and the fact you can save up to a quarter of a million £ in tax," he says.
As for reinvestment relief, this has proved useful for deferring CGT on estates with share portfolios and large capital gains. "But farming was not originally within the scope of the legislation and is likely to be put outside again, if there is a change of government."
On inheritance tax, Grant Thornton predicts that a Labour government will tighten the rules and advises that now is the time to start estate planning.
Mr Collister believes the nil rate band (at which transfers of assets are totally exempt from IHT) will be frozen at £215,000 under a Labour government. "Instead, it is the reliefs that will be scrutinised, in particular agricultural property relief on tenanted land." This currently enjoys 100% total exemption from the 40% IHT, so long as it has been farmed for two years. Labour is likely to cut this benefit.
Existing legislation also allows gifts to be free from IHT so long as the donor survives seven years. This is likely to go in a new Finance Act and farmers are urged to take advantage of this option now.
Grant Thornton lists other priorities for pre-election tax planning:
• If you believe income tax is likely to rise, possibly by lifting National Insurance contributions, then think of taking income now.
• Tax relief on private medical insurance for the over-50s may be abolished. Consider putting policies in place now in the hope that existing policies are not affected.
• Unincorporated businesses may suffer higher rates of tax or National Insurance. Consider bringing your spouse into the business as a partner, or think of incorporating the business.
Jeremy Lewis: Capital gains tax is where there is greatest uncertainty.