Welcome to our summer edition of Farming Matters. A lot has changed since our last issue and most of our conversations and the underlying theme of…
This article was originally published in the Western Morning News on Wednesday 24 March 2021.
I have been asked by many clients and fellow professionals, what came out of the recent budget? The rise in corporation tax and freezing of tax thresholds were obvious talking points, but more interestingly I think was what was not said. Commentators have speculated favourable Capital Gains Tax (CGT) rates and generous Inheritance Tax (IHT) reliefs cannot last forever and with vast government support being handed out in response to the pandemic, it is clear there is a hole to fill in the treasury budget.
The Office of Tax Simplification (OTS) released its first report in 2020 on the possible simplification of CGT. The report recommended aligning CGT rates with income tax rates to effectively more than double the rate of CGT paid.
The relationship between IHT and CGT has also been reviewed. On death, currently beneficiaries inherit these assets at an uplifted base cost. For example; land left to a beneficiary might have been worth £1,500 per acre, when acquired 25 years ago, but it is now worth £8,000 per acre. If the next generation wanted to sell this land, CGT is paid on the difference between the £8,000 cost inherited and final sale price achieved. This is not likely to be much if sold soon after inheriting. However, the OTS report recommends removing this uplift in asset value on death and therefore a £1,500 base cost used on sale instead of £8,000……..a potentially much larger CGT bill!
Turning to IHT, Agricultural Property Relief (APR) and Business Property Relief (BPR) on death have both helped reduce IHT liabilities. APR helps landowners and farmers pass land and property onto the next generations with no tax burden. Critics say this relief has been exploited in the past and changes need to be implemented. With respect to BPR, a wholly or mainly test of more than 50% helps determine whether you have a business or an investment asset on death. Calls to move this test up to as high as 80% would remove the attractive relief from a lot of estates.
Although these recommendations have not yet been acted upon, they might not have gone away for long and could be brought into the autumn statement later this year. More immediately, the government was due to publish a Command Paper containing further tax policy and new consultations yesterday (23 March 2021). As you are reading, there may well have been further announcements which we will update on our website.
In summary, nothing I read or hear suggests that either CGT or IHT rates or reliefs will become any more favourable in the near future and the opposite would seem most likely. In my opinion, now is the time to think and talk about your succession plans and take the necessary action. You have a window of opportunity to get your affairs in order and it would be a shame to miss out.
At PKF Francis Clark, I have been part of our own succession planning, being promoted to the position of Director with effect from 1 April 2021, heading up our South Devon office’s agricultural offering. Having joined the Tavistock office as a trainee back in 2007, I am delighted to have taken another step up and continue with my career progression. As part of this role, I am excited to continue talking with local farming families, understand their own succession plans and help to bring on the next generation of farmers.