We move forward into a new decade and the implementation of the Conservative Party’s manifesto commitments.
Investment in the NHS and green infrastructure projects are a good thing but it all needs to be paid for and, with subdued economic growth forecasts, it seems to me tax raising will be on the agenda. Government borrowing can help in the short term, but at the end of the day debt needs to be repaid.
The principles of balancing the books are no different whether it’s a farming business or running the UK economy, but the Conservatives said they would not raise the rate of income tax, VAT or national insurance.
Income tax affects a significant percentage of the population, whereas capital taxes – covering both capital gains and inheritance tax (IHT) – only apply to approximately 1% of the population, so politically capital taxes are an easier hit and have the potential to plug some of the hole in the United Kingdom books depending on how drastic any changes are.
I think it is reasonable to expect changes in the not too distant future.
The current system of Entrepreneurs’ Relief on capital gains could be changed by increasing the rate or indeed limiting further the gain eligible for relief.
For a farming business with a successor, this change would not necessarily be a big issue, but for a farmer looking to sell up and retire, it could make a dent in the sales proceeds.
Inheritance tax is chargeable at 40% on an individual’s estate exceeding £325,000, but in the context of farming there are currently various reliefs available that can fully mitigate IHT on death, and also seek to defer capital gains when transferring business assets in lifetime.
If the assets meet the appropriate definitions as agricultural property then there is unlimited IHT relief available on death.
If that were to change then it could be worth considering transferring assets in lifetime, but that assumes there is not a new tax or other restriction introduced on the lifetime gifting of business assets.
The relevance of this to farmers and landowners is succession planning. If a family is not at the right stage to make changes, I am not suggesting making rash decisions, but if you have a fair idea how you would like to move things on then now would be an excellent time to act.
In my experience it takes several months to discuss, agree and implement changes to businesses and often the winter period is a good time to start the conversation.
Ian Craig is a partner with Campbell Dallas accountants.