CLA Viewpoint: Farmers should manage their tax risks, says Chris Leney
ALL businesses in any sector are exposed to risk to one degree or another.
One of the keys to a successful business is identifying all risks, and managing them as much as possible.
Farming is no different, and often the risks to farming businesses can be quite great, be it large fluctuations in commodity prices, rising input costs, increased legislation and red tape, changes to the Capital Tax regime or the weather.
Unfortunately we have no control over the weather (unless you believe that the Government controlled the weather in the lead up to the Olympics!).
However, the first three in this list can be managed relatively easily through having a planned crop sales policy and spreading the sales over a period of time (and spreading the risk); buying inputs through a farmer’s cooperative and benefiting from any cost savings available; and by taking a sensible and proactive approach to managing risks in the field and yard by complying with Health and Safety legislation and having the appropriate risk analysis’ in place.
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The effects from the Capital Taxes system and a possible change to it are, however, issues that are not always at the forefront of farmer’s minds, but are something that should regularly be reviewed.
We often see a flurry of activity with land and property changing hands between family members etc. before a budget, but this is never the most productive way of dealing with things.
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We currently have a relatively benign Capital Taxes system for agricultural and business property, however as pressure mounts on the Government to cut their surplus, it is possible that some of these reliefs will be revisited in the next couple of years and some could be abolished or reduced.
If this coincides with a time when land prices are still high, the impact could be significant to some businesses.
Some careful and relatively simple planning can result in significant potential savings in the future, with some actions ensuring that changes to the Capital Taxes regime have a minimal impact on the business going forward.
When reviewing Capital Taxes it is also worth ensuring that some of the older changes to the Capital Taxes System have been taken advantage of.
For example many farming partnerships farm the family land under some form of Tenancy arrangement, often with the land being owned by one or more of the farming partners.
Depending on the nature of that Tenancy, and the structure of the partnership, on death the presence of that Tenancy may mean that only 50% Agricultural Property Relief is available from Inheritance Tax, rather than the 100% that many would expect.
A simple surrender and re-grant of this Tenancy will ensure 100% agricultural property relief is obtained, and whilst there may be a modest cost involved in terms of Capital Gains Tax, the potential savings on death could be significant.
The above is just one example of many actions that can be taken to ensure that all reliefs are maximised, and the risk of Capital Taxes is minimised to farming and land owning businesses.
Whilst we can only act on what we now it is better to take positive action now, than to do nothing and possibly be left with a larger tax liability in the future.
For more information about the CLA visit www.cla.org.uk or follow on Twitter @CLAEast.
You can also ring the Newmarket based CLA East office on 01638 590429 to enquire about joining the organisation.
: : Chris Leney is a CLA Suffolk committee member and a partner at Robinson & Hall LLP.