Top Tax Tips for Farmers & Landowners, from Saffery Champness

Saffery Champness Landed Estates & Rural Business Group has listed its Top Tax Tips for landowners and farmers for the financial year ahead.

1. Don’t pay more tax than you have to for 2010/11. The top rate of tax for 2010/11 is 50%, but even if your profits are more modest you still may be paying tax at the higher rate of 40%. Consider reallocating business profits to minimise the overall family tax bill, spreading profits across the family if appropriate.

2. Watch out for restrictions on income tax relief on losses for ‘non active’ partner.  If you have business losses, watch for the rules restricting the availability of ‘sideways’ loss relief for ‘non active’ partners and considering re allocating the losses to avoid this.

3. Don’t forget your Capital Gains Tax (CGT) allowances. For higher rate tax payers Capital gains are now usually taxed at 28%, compared to income taxed at 40%, or even 50% for the highest rate taxpayers. So, where possible, consider investing in assets that give rise to CGT liabilities rather than income tax liabilities. As well as a lower rate of tax, CGT benefits from a higher annual tax free allowance, set at 10,100 for 2010/11. You should aim to use up your tax free annual allowance by making disposals before 6th April 2011.  In the event that capital losses are made these can be utilised in a manner most beneficial for the tax payer.

4. Rules are changing for Furnished Holiday Lettings (FHLs) after April 2011. If you have furnished holiday lets, you will be aware that the current beneficial tax regime for FHL businesses is changing. After April 2011 losses will not be available to offset against your other income but any losses you incur in this tax year 2010/11 may be offset so, if possible, maximise any losses from your FHL business, by accelerating repair and maintenance expenditure and other allowable expenditure and possibly also capital expenditure qualifying for capital allowances.

5. Make maximum use of your available capital allowances. The annual investment allowance for the 2010/11 tax year is 100,000, giving 100% income tax relief on capital expenditure up to 100,000 on qualify plant and machinery. But there is no carry forward so it is a case of ‘use it’ by April 2011 or ‘lose it’.  Note the reduction in the Annual investment allowance from 100,000 to 25,000 that takes effect from 6 April 2012.  Although this rate change is one year away if your business does not coincide with the tax year, the AIA is apportioned so careful consideration will be needed with the timing of major purchases.

6. Rollover Relief for business assets. With the increase in the rate of capital gains, where there is a chargeable gain on the disposal of a qualifying business asset, consider matching the proceeds of this sale against the acquisition of another qualifying business asset in order to rollover or hold over the gain.

7. Entrepreneurs Relief. The lifetime limit for Entrepreneurs Relief was raised to 5m for disposals after 22 June 2010.  Every tax payer has their own 5m threshold.  It is important to ensure that family businesses are structured in a way to maximise any possible Entrepreneurs Relief claim to keep CGT to 10% rather than 28%.

8.  Employment Costs. As an employer, your National Insurance costs will increase from 6 April 2011.  If you are considering making additional salary payments in the next few months, you need to budget for this increase if such a decision is to be made.

9. Use up your Inheritance Tax (IHT) allowances. If you are looking to give to the next generation, remember that gifts totalling up to 3000 in a tax year are exempt from IHT. This allowance can be carried forward by one year, so if you made no gifts in 2009/10 you can make IHT – free gifts of up to 6000 before 6th April 2011.

10. Keep you succession plans under review. As part of your financial spring clean, dust down your Wills and consider whether your plans for the farm/business and your other assets reflect both your current wishes and up to date tax legislation.

11. VAT Tip.  If you are VAT registered and this registration includes both your agricultural business and rental properties then you will be in a partial exemption position, preparing partial exemption calculations on an annual basis (as well as when preparing the monthly/quarterly VAT returns).  Although the Vat rate has risen to 20%, the de minimis limits have not, and still stand at an annual amount of 7,500 of VAT.  With the rise in VAT rate this equates to net expenditure of just 37,500 (compared to 42,857 before the rise) of exempt expenditure allowable.  If you have rental property repairs and improvements panned that are likely to take your exempt expenditure over this limit, then you may want to consider spreading them over two partial exemption periods so that you remain below the de minimis limit and thus are able to claim all of your VAT in the year.

Richard Cartwright, a partner of Saffery Champness Landed Estates & Rural Business Group, says: With a new financial year fast approaching, and the economic outlook and interest rates remaining uncertain, UK farmers and landowners need to maximise tax savings now to secure their business and maintain returns.

• Saffery Champness has published a free factsheet on these new rules, which is available on request.
• Saffery Champness partial exemption calculator has been updated and is available to download free on www.saffery.com It now applies all the tests in a single operation and tells you the answer.
• Saffery Champness has 58 UK partners and more than 400 staff, with nine offices in the UK (including Scottish offices in Edinburgh and Inverness) and one each in Guernsey and Geneva. The firm celebrated its 150th anniversary in 2005, after the firm was founded in 1855 by Joseph John Saffery. For further information about the Company, please visit www.saffery.com
• Saffery Champness has worldwide associations in over 100 countries through its membership of the global association Nexia international.
• The Landed Estates Group is headed by a team of 15 partners who advise landowners, agricultural and rural businesses on financial and tax matters, particularly capital taxes and VAT.