Budget 2013 delivers a mixed bag for farming

Budget 2013 is a mixed bag for farming, offering benefits including a £2,000 reduction in national insurance charges for all businesses and scrapping a planned fuel duty rise.

Alongside higher personal tax allowances, the chancellor also extended tax relief for certain new enterprises.

Those trading through a company will see the corporation tax rate fall to 20% in 2015-16 and while personal tax rates were not changed, the individual personal allowance will rise to £10,000 from April 2014, a year earlier than planned.

The reduction in the corporation tax rate may encourage more farm businesses to switch to a company structure.

However, the detail which began to emerge after the chancellor sat down contained important implications for farming families. This came in the form of an amendment to inheritance tax rules currently allowing liabilities owed by the deceased on death to be deducted from the assets against which they are secured in an individual’s estate, usually resulting in a lower IHT bill.

Carlton Collister of Landtax knows of several farmers who will be affected by this. “This will definitely make tax planning more difficult. It would appear to penalise legitimate transactions, although we will have to look at the detail,” he said.

“This will apply where an individual has incurred a liability to acquire assets on which a relief such as business property relief, agricultural property relief and woodlands relief is due.

“We will have to await the detail when the Finance Bill is published next Thursday, but all personal borrowings used to purchase farmland or an interest in a business would appear to be affected. From the limited detail that we currently have this legislation will apply to all deaths after the date when the Finance Bill receives royal assent (usually July), regardless of when the debt was incurred.”

NFU chief economist Phil Bicknell was disappointed not to see any incentive for capital investment in buildings and other farm infrastructure.

However, alternative enterprises investment was boosted with the extension of the seed Enterprise Investment Scheme for a year, but with less generous capital gains tax relief than it originally offered.

This scheme was introduced for 2012-13 only to encourage investment in small new and early-stage companies. It offered generous tax reliefs and has been extended to 2013-14, although the CGT exemption is now 50% rather than 100%.

“It has taken a lot of time for people to get to grips with the rules, and there have been very few that have actually managed to get any up and running in time, so the extension is very welcome,” said Catherine Vickery of Old Mill Group.

“While farming itself is not a qualifying trade, many associated trades are, such as farm shops, butchers, machinery trading, grain drying and cheese making.”