Budget 2012 farming wish list

Below is a summary of some of the key announcements to look out for in the Budget 2012, provided by Saffery Champness and NFU Mutual.

Wishlist…

Reduce fuel duty

Any measures that would lower the cost of fuel for those in rural areas would be welcome news, according to Saffery Champness. While the deferral of the 3p rise in fuel duty from January to August is beneficial, more needs to be done to reduce the impact of high fuel prices on rural businesses which makes them less competitive to those where other transport options are available. A fuel duty rebate for people in rural areas, which already exists in Scotland, seems a sensible measure.

VAT

Many businesses in the countryside are based on leisure activities, but these are being particularly hard hit by the current economic climate. A reduction in the rate of VAT charged, as in some other European countries, would help these businesses survive these difficult times. Similarly, an extension of the reduced rate of VAT in respect of work on properties would help the construction industry and help ensure the condition of country’s housing stock does not deteriorate.

Rethink AIA plans to encourage investment

The limit for the 100% Annual Investment Allowance (AIA), which provides tax relief for investment in plant, machinery and commercial vehicles is set to fall to £25,000 from April 2012. At the same time businesses that conduct their affairs through corporate vehicles will see a reduction in corporate tax rates and therefore will receive some compensation for the reduction in the tax allowance.  However, many rural businesses are conducted through partnerships or sole traders and the new limits on AIAs will be a big disincentive to invest in new or existing businesses.

Rural property

Demand for private rented housing in rural communities continues to grow. Saffery Champness would like the tax system used by the government to incentivise investment in rural housing in the private rented sector. Some landowners face significant tax costs (up to 28%) when selling property and considerable liabilities to Inheritance tax (up to 40% of the value of the property) on death. Both of these discourage from investing in rural residential property portfolios.

Tax thresholds

Raising income tax thresholds and cutting employers’ National Insurance bills could provide a much-needed boost to the countryside’s economy according to NFU Mutual.

By increasing the threshold for income tax to more than £8,105 – which will apply from 6 April, offering businesses incentives to take on workers via lower National Insurance contributions and reducing fuel duty the Chancellor could help revive the rural economy, said personal finance specialist, Sean McCann.

Watch out for…

Mansion tax

A ‘Mansion Tax’ could disrupt rural Britain if it becomes part of the Chancellor’s Budget plans.

“Many country people are asset-rich but cash-poor and a further tax on property could damage the rural economy,” said Mr McCann. “Many people living and working in the countryside will live in larger homes than their urban counterparts but this does not reflect the daily struggle many country people have with low wages and a high cost of living.

“If George Osborne chooses to introduce a ‘Mansion Tax’ on properties in this month’s Budget, he needs to give the rural community some specific consideration and this could create fairly complex legislation.

Agricultural Property Relief

A government initiative to simplify tax rules could bring with it restrictions on Agricultural Property Relief (APR), according to NFU Mutual.

“The Chancellor is desperate to find new ways to boost the Government’s coffers, so he may see the current HMRC tax simplification as an opportunity to restrict APR,” said Mr McCann. 

Under current legislation, the owners of land which was let out for agricultural purposes could potentially avoid inheritance tax if they have owned the land for at least seven years.

“We have heard rumblings that the Chancellor would like to restrict this concession to make it applicable only to landowners who actively farm the holding themselves.

“If APR rules are changed, it could seriously affect the inheritance plans for many landowning families and even bring down the price of farm land.” 

More tax anti avoidance measures

HM Treasury recently announced changes to the rules for losses that can be claimed by a person from a property business with a relevant agricultural connection.

The changes are designed to prevent tax-generated agricultural expenses being available for relief against the person’s other taxable income, known as ‘property loss relief’.

This change arises because Government has become aware of avoidance activity that relies on creating contrived costs in order to claim property loss relief putting substantial amounts of tax at risk. It is likely to be a precursor to further anti-avoidance measures expected to be announced in the Chancellor’s Budget, says Saffery Champness.