There is now less than a month before we hear what Rishi Sunak disclosures in his first budget. Here are some of the predictions on what he might say which will affect farmers and landowners:
- For farm and estate employees, the level at which they start to pay National Insurance rises to £9,500 as part of the Government’s ambition to increase the threshold to £12,500 over the next few years. The rise also applies to those self-employed. For a typical employee it effectively means they will pay £104 less in 2020/21 tax year. The upper NICs threshold, however, remains frozen at £50,000.
- There is unlikely to be any immediate increases in income tax or VAT rates as this was a pledge in the Conservative party manifesto. Despite that, however, there may be some changes to VAT in the future. As part of the withdrawal agreement, the UK will continue to apply EU law until 31 December 2020 and will leave the EU VAT regime on that date. This includes the obligation to maintain a minimum VAT rate of 15%.
- On the 29th January 2020 the All-Party Parliamentary Group for Inheritance and Intergenerational Fairness published it’s views on IHT which included the abolition of Agricultural Property Relief (APR). If adopted this would have a significant impact on the transfer of family businesses and farms and careful thought should be given as to how this might impact current succession plans. One of the motives might be to bring the younger generation into the business sooner rather then hold on to the family farm until death. However, that may require review of partnership agreements and shareholder agreements to ensure the appropriate checks and balances are in place.
- Both the All-Party Parliamentary Group and the Office of Taxation Simplification (OTS) have suggested reforms to gift allowances and exemptions. This could include the merging of the residence nil rate band into the nil rate band perhaps with a higher limit of £500,000 and only a five year period required to survive rather then the current seven. This would result in a major simplification of IHT and potential opportunities for estate planning and gifts into trust.
- If APR is to remain then the Chancellor may adopt the recommendation of the OTS for APR to be reviewed in relation to farmhouses where the farmer needs to vacate the farmhouse for care or medical treatment which currently means the loss of the relief. With an ageing farming population this change would be very much welcomed in the industry.
- The OTS also suggested that the conditions for Business Property Relief might be tightened by the alignment of the rules on the definition of a trading business to that for capital gains tax. For a mixed trading/non-trading farm or landed estate this could mean that the non-trading element under the Balfour case matrix would need to be reduced to just 20% rather then the current 50%. All farming and landed estate business would need to review their assumptions on obtaining Business Property Relief and this may necessitate the hiving off of non-trading elements into a separate business vehicle.
- For 20 years there have been rumours of the abolition of deeds of variation or deeds of family arrangement. This year is no different and if there is a possible deed of variation being considered the message has to be get on with it just in case.
Capital gains tax
- Amendments to Entrepreneurs’ Relief (ER) are widely expected including the potential increase in the 10% rate, a decrease in the lifetime rate of £10 million or an abolition of the relief altogether. This could be potential significant if you are owning property with development value. Therefore consider whether now is the time to lock in the relief by triggering a gain now and claiming ER under the current rules.
- It has already been announced that the proposed 2% reduction from 1 April 2020 will be reversed meaning that the rate of corporation tax for farming companies remains at 19%.
Capital expenditure on the farm
- Farm business currently benefit from a temporary increase in the Annual Investment Allowance which allows 100% tax relief on the purchase of up to £1 million of machinery and equipment. This is due to end on 31 December 2020 with the limit reverting back to just £200,000. Businesses need to consider the timing of the purchase of assets particularly if their accounting date is not 31 December as the AIA limits will be apportioned.
- The Conservative Party manifesto pledged to increase the current Structures and Buildings Allowance tax relief on the cost of a basic farm building from 2% to 3% and it is anticipated that this will be confirmed in the budget.
With all this in mind, if you require pre-budget recommendations and planning in relation to your current situation, please do not hesitate to contact us.