There are
three main recommendations about tax;
1. Remove the difference in tax
rates between companies and individuals.
2. Restrict Agricultural Property
Relief (APR) to working farmers under 70.
3. Extend Entrepreneurs Relief to
let farmland.
I am not
sure these will have the desired effect that the Review wishes. I have explained
my reasoning below.
1. Tax equalisation
It is
hard to see the government either increasing corporate tax rates, expected to
fall to 20% from April 2015 or decreasing personal tax rates currently between
0% and 62%. The government’s recent consultation on mixed
partnerships also suggests that they are not minded to go down this route,
wanting to remove the hybrid structure that currently gives businesses the best
of both worlds.
Even
small businesses such as window cleaners and bookkeepers have incorporated to
reduce their tax burden. Like any decision the extra costs and compliance
obligations of incorporation need to weighed up against the benefits, just like
any other business decision. For some the drawbacks of incorporation, such as
the possible loss of 100% Business Property Relief (BPR) on development land,
might be too costly. But everyone has a choice of structures, some are simply
better suited to an individual’s circumstances than others.
Would a
simpler solution be to alter tenancy law to allow landlords to let companies
share occupation with tenants without the risk of the company establishing a
tenancy, or without the tenant losing succession rights? This shouldn't be an
issue with Farm Business Tenancies.
2.
Restricting APR to those under 70
The
suggestion that restricting APR to those aged 70 or less on land farmed in hand,
but maintaining its availability to any age if let, seems a bit strange.
As the
Review pointed out BPR would be available on land but not farmhouses, what
isn't mentioned is that BPR is only available at 100% where it is an asset in
your trading business, i.e. farmland held as a partnership asset. If however
the land is held outside the partnership and let on an FBT it would still
attract 100% APR but only 50% BPR.
Given
that BPR is available on pretty much everything bar the farmhouse on a working
farm, will this make any difference? One of the attractions of holding farms
till death is the valuable Capital Gains Tax uplift to market value that is
sheltered by the IHT reliefs. This will still be available so unless farmers
have valuable farmhouses will this make any difference?
Will it
encourage farmers to let the farm or simply sell up, the latter generally acknowledged
as being a bar to new entrants?
3. Making
let land qualify for Entrepreneurs Relief.
This in
my mind seems the most ill-conceived idea!
One of
the downsides to owning land as a landlord is that any gains are likely to be
taxed at the highest Capital Gains Tax rates. Gains however are eliminated with
an uplift to market value on death as long as IHT reliefs are available to
prevent an IHT charge.
This
uplift effectively reduces the Capital Gains Tax rate to 0% which makes the
holding of land until death very valuable. So owning let agricultural land is
an ideal investment for passing wealth to the next generation.
Reducing
the existing tax rate on sales of let property will only make it a much more short
term investment, if I can buy land let for a year and sell at a gain why wont
I? Surely the existing rules, that already give a CGT uplift on death,
encourage longer term holdings and are more likely to encourage longer term
letting?
More
speculative investment in land driven by tax changes will only shorten
tenancies and push up land prices, both of which will hamper new entrants.
These are
obviously just my thoughts but tinkering with some of these issues might result
in unintended circumstances, many non farmers, including some of my work
colleagues think that there are too many tax reliefs for farming. Will the
industry’s drive to encourage
succession lead to tax changes that are detrimental to the majority?
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