Budget 2016: What does it mean for the Agriculture sector?

Posted On March 17, 2016 By mhauk

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David Missen, Head of our Agriculture sector offers his views on this year’s budget and considers some of the implications for the agricultural community.

“George Osborne’s Budgets are always good for keeping accountants on their toes, and this one is no exception” said Missen. “The Chancellor has certainly had his eye on small businesses and hoping to bring some good news through the following changes.

Capital Gains Tax Reduction

The headline announcements for the agricultural sector are those concerning capital taxes. With the top rate of Capital Gains Tax (CGT) on assets (excluding residential property) dropping from 28% to 20%, CGT is starting to look like a manageable expense where farm land is being sold. In addition, where you have previously held or rolled over a qualifying gain at the previous rate of 28%, if you dispose of this post 6th April 2016 you will benefit from the 8% reduction in CGT.

Stamp Duty Land Tax Changes

In addition to the changes in CGT Rates, Stamp Duty Land Tax (SDLT) on commercial property has also been amended so that the rate chargeable is based on a tapered (sliced) system, similar to the changes to SDLT on residential property announced last year. Where land sales are being contemplated it will almost certainly be advantageous to defer the sale until after 5th April 2016.

There is also an intriguing possibility to revisit disposals pre 6th April 2016 to see whether a rollover relief claim should be made, since such gains will now be both deferred and permanently reduced by at least 8% (or at least until next time the rates change).

Amendments to Entrepreneurs Relief

For the corporate entity there are also some welcome extensions to Entrepreneurs’ Relief (ER). New investment by external investors into unlisted companies becomes eligible for ER, potentially opening up a new source of capital for small businesses, and opportunities for investors.  So this could mean that from 6th April 2016, external investors may be more enthusiastic about investing in shares in trading companies, as their involvement can now be purely financial without the requirement for them to satisfy the previous qualifying conditions such as becoming an employee or holding an office for the company.  At the other end of the investment process ER has been extended to include relief on the passing of some business assets to family members when an individual fully or partly retires.

Corporation Tax Reduction

Building on last year’s news that the Corporation Tax rate will drop to 18%, the Chancellor today announced a further reduction to 17% in 2020. Less welcome is an anti avoidance measure which increases the tax due on overdrawn directors’ loan accounts to 32.5% – the moral now being that provided there are distributable profits, it is probably better to vote the dividend and clear the account.

For agricultural corporate businesses, rules were announced for the treatment of brought forward losses. At present, brought forward trading losses are only available to be offset against profits of the same trade. From April 2017, changes will be made so such losses are now available to be offset against all taxable income and not just trading profits. In addition, the chancellor will allow companies to surrender brought forward trading losses to other group members which should unlock trapped group losses.

Tax Assisted ISAs

On the investment front the announcement of special tax assisted ISAs for the under 40’s might open an opportunity for an easy and tax efficient way for the next generation to build up some significant capital – perhaps to buy out the parents’ house when it is time to take over the holding? It will be interesting to see the fine print there.

Small Business Rate Relief

Finally, and outside the mainstream taxes, the extension of permanent small business rate relief for buildings with a rateable value of £12,000 will be welcome news for those who rent (or let) small industrial units – and perhaps also for those who are uneasy about whether the level of contracting activity might potentially be endangering the agricultural exemption of their farm buildings.

Contact us
If you would like to understand more about any of these areas or would like to discuss this with a member of the Agriculture team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in touch with your local representative.