After a wealth of speculation, the Chancellor’s spring Budget held relatively few surprises or significant changes. Many will have heaved a huge sigh of relief when there was no announcement of changes to Inheritance Tax reliefs and no suggestion of a wealth tax!!!
Some of the announcements which may be of interest to farmers are noted below:
- Change in Corporation Tax Rate
For those farmers who operate via limited companies or who have limited companies as part of their business structure, the increase in the rate of Corporation Tax is likely to result in an increased tax bill.
Currently, Corporation Tax is paid on business profits at 19% and this is to increase to 25% from 1 April 2023. However, the increase won’t apply to businesses with profits under £50,000. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective corporate tax rate.
- Temporary extension of carry back of trading losses for Corporation Tax
A welcome extension to loss relief rules will allow a company or unincorporated business making losses in 2020/21 and 2021/22 to carry back losses for up to three years. The loss will be offset against taxable profits (for companies) or net income (for individuals), on a last in first out basis.
- ‘Super deduction’ of 130% for companies investing in new plant and machinery
This will be available for two years from 1 April 2021 and is a tax incentive for companies only to invest in newplant and machinery (i.e. brand new, not just new to the business – so this excludes second hand equipment). This will generate a reduction of tax of 24.7% for every £1 spent.
- Temporary increase in Annual Investment Allowance
The Annual Investment Allowance (AIA) limit of £1m will continue to apply until 31 Dec 2021. This allowance allows businesses to deduct the full cost of certain qualifying business equipment from taxable profits.
It may have come as a surprise to many that there was very little about Capital Gains Tax (CGT) changes. There were concerns that the rates would increase or that annual exemptions and reliefs may be reduced in scope or even abolished altogether. There was no mention of this. However, I suspect the Chancellor may wait for the second report from the Office of Tax Simplification (OTS) before considering this further………...
The OTS published its first report on CGT, in November 2020 which was on the ‘policy design and principles underpinning the tax’. This report included recommendations to the government to consider the following:
- More closely aligning rates of CGT with Income Tax or addressing boundary issues between the two taxes.
- Reducing the CGT Annual Exempt Amount.
- Removing the capital gains uplift on death and instead providing that the person inheriting the asset is treated as acquiring the assets at the historic base cost of the person who has died, with perhaps a rebasing of all assets to a certain date and an extension to Gift Relief.
- Amending Business Asset Disposal Relief (previously called Entrepreneurs relief) to be more focused on retirement and abolishing Investors Relief.
The second report which is expected early this year will explore key technical and administrative issues.
When we are undertaking lifetime planning for farmers and looking to pass the farm down to the next generation, CGT reliefs play a major part in this as without them planning would be impossible in most cases due to the tax costs involved. Therefore, if succession planning is on the horizon in your own business it may be worth taking action sooner rather than later to take advantage of the current favourable position.
Mairi Drummond FCCA CTA
mairi.drummond@renniewelch.co.uk
Thank you for reading this article. To receive more similar information, guidance on other areas of interest, or to arrange a follow up, please record your details here.