FAQs

If you receive joint income, such as income from a jointly owned property, each individual must report their share of the income separately for Making Tax Digital (MTD) for Income Tax purposes. MTD requires each taxpayer to maintain their own digital records and make their own submissions to HMRC, even if the income is derived from a jointly held source.

For example, if you and another person own a rental property together, you should each keep digital records of your respective share of the income and expenses. When making quarterly updates and your final submission, you must report only your share, not the total joint income. This ensures that HMRC receives accurate information for each taxpayer’s liability.

It all depends on what the business is diversifying into…

If the business is diversifying into other farming activities, for example, from arable farming to poultry farming, there will be little change to the tax position. All income from farming is assessed as one trade for tax purposes and there will be no change in the VAT position, Inheritance Tax reliefs or Capital Gains reliefs.

If the business is diversifying into investment activities, for example, property rental, there can be a substantial change in the tax position. For income tax purposes, the rental profits will be a separate trade which can carry their own tax rules. Generally speaking, rent is exempt from VAT which can lead to a restriction of input VAT reclaimed on overheads. Agricultural and Business Property Relief may not be available at all if the business is not “wholly or mainly trading” and so if the rental business will be larger than the farming business, you should consider restructuring to protect valuable reliefs against the farming assets.

Diversifying into renewable energy can be attractive from a tax perspective as some projects qualify for capital allowances at rates of 6%, 18% or 100% of expenditure. If the energy is used in the farming business, the Inheritance Tax and Capital Gains position won’t change. If the energy is sold, it may be considered an investment activity, which, as mentioned above, can lead to restrictions in reliefs available.

Setting up a trading business will still see changes to the tax position of your business. For income tax purposes, the profits will be a separate trade which can lead to restrictions if one of the trades is making losses or with farmers’ averaging claims. For Inheritance Tax purposes, Business Property Relief will be available on the new trading assets without any tainting of Agricultural Property Relief on the farming assets.

Changing risk profiles for diversification means that you should consider diversifying in a separate entity with limited liability to safeguard the existing business against any claims.

There’s a lot to consider with diversification from a tax and accounting perspective so it’s important to talk ideas through with a specialist to ensure you don’t encounter into any pitfalls.

The Basic Payment Scheme has provided valuable income for farming business, particularly those in the arable sector. The Government has confirmed no changes will be made for 2019 or 2020 and has announced deductions for 2021. The deductions are at rates between 5% and 25% and are staged as with income tax. Farmers can plan for this and should build the deductions into their cash flow forecasts.

Post 2021, deductions will be dependent on Spending Reviews and requirements under the new Environmental Land Management Scheme (ELMS); the Basic Payment Scheme’s replacement once we’re outside of the EU. ELMS may prove a valuable income stream for some farms, particularly those with a heavy focus on the environment. That said, the general consensus is that support will fall and so it is important to take a step back to review the profitability of your business without any support to see if you can make a viable profit.

If you can’t make a profit, you will need to consider what can be done to make it viable. This could involve changing cropping plans for poor performing fields or taking them out of cropping altogether and into the new ELMS scheme, partnering up with others to ensure machinery is used to full capacity or diversifying into non-farming activities or farming activities less dependent on subsidies, e.g. intensive livestock.

Being less dependent on the Basic Payment Scheme may provide more opportunities for increasing income from the sale of crops. Land may be farmed without abiding by regulations which are set centrally by the EU for a variety of countries with very different farming environments. This may encourage more efficient farming and an increase in yields.

The Agricultural Bill explained that the Basic Payment will be de-linked from the requirement to occupy land in the future. This along with the option for a lump-sum payment may provide financing options for those who are already looking to retire from the business. The Government will release a consultation on how this will work later this year which should provide more clarity. We particularly have concerns with how a lump-sum payment would be assessed for tax purposes which could give rise to tax liabilities up to 47% of the payment.

The higher rates will apply as following the purchase you will own an additional residential property and is this is not replacing your main residence. Unfortunately, a refund of the higher rates cannot be claimed once the properties have been merged as refunds are only available where a previous main residence has been disposed of.

The higher rates will apply after the purchase, as you will own an additional residential property, and this is not replacing your main residence. Unfortunately, you can’t claim a refund of the higher rates once the properties have been merged, as refunds are only available where a previous main residence has been disposed of.

There is a special exemption where a “subsidiary dwelling “ is purchased with a house. As long as the smaller dwelling is purchased in the same transaction as the main dwelling, it is valued at less than one third of the total purchase price and it is within the grounds of the main house then you are not treated as buying two dwellings.

There is a special exemption when a “subsidiary dwelling” is purchased with a house. If the smaller dwelling is purchased in the same transaction as the main dwelling, is valued at less than one-third of the total purchase price, and is within the grounds of the main house, it’s not deemed that you are buying two dwellings.

Not every HMRC brown envelope will be a notice of an impending investigation. If you receive any of the notifications below, HMRC have flagged you for some reason. The good news is they’re giving you an opportunity to avoid a full investigation.

One to many letters

Standard ‘one to many’ letters are sent to groups of taxpayers highlighting changes in legislation that are specifically relevant based on previous returns. Sometimes a response to these is not appropriate.

Nudge letters

Like a ‘one to many’ letter, a nudge letter isn’t notice of an official investigation, but they shouldn’t be overlooked. These letters are sent based on discrepancies identified when HMRC cross references data it receives with a filed tax return. Treat these letters as a serious prompt to review your tax position, identify any problems and, most importantly, make it right if neccessary.

Offshore income or gains disclosures

HMRC now receives data from over 100 countries. If HMRC suspects offshore income or gains have not been reported, you have an opportunity to come forward using the Worldwide Disclosure Facility, which might reduce penalties.

It all depends on what you’re diversifying into. If you’re diversifying into other farming activities, for example, from arable farming to poultry farming, there will be little change to the tax position. All income from farming is assessed as one trade for tax purposes, and there will be no change in the VAT position, inheritance tax reliefs or capital gains reliefs.

If you’re is diversifying into investment activities, such as property rental, there can be a substantial change in the tax position. For income tax purposes, the rental profits will be a separate trade which can carry its own tax rules. Generally speaking, rent is exempt from VAT, which can lead to a restriction of input VAT reclaimed on overheads. Agricultural and Business Property Relief may not be available at all if the business is not “wholly or mainly trading”, and so if the rental business will be larger than the farming business, you should consider restructuring to protect valuable reliefs against the farming assets.

Diversifying into renewable energy can be attractive from a tax perspective, as capital allowances may be available in respect of qualifying expenditure. The extent of relief will depend on the type of project and the assets involved. If the energy is used in the farming business, the inheritance tax and capital gains position won’t change. If the energy is sold, it may be considered an investment activity, which, as mentioned above, can lead to restrictions in the relief available.

Setting up a trading business will still see changes to the tax position of your business. For income tax purposes, the profits will be a separate trade, which can lead to restrictions if one of the trades is making losses or with farmers’ averaging claims. For inheritance tax purposes, Business Property Relief will be available on the new trading assets without any tainting of Agricultural Property Relief on the farming assets.

Changing risk profiles for diversification means that you should consider diversifying in a separate entity with limited liability to safeguard the existing business against any claims.

There’s a lot to consider with diversification from a tax and accounting perspective, and our friendly team of farming accountancy experts are here to chat through ideas and ensure you avoid the pitfalls.

Yes, you must consider any residential properties you own, regardless of where they are. However, property owned overseas may not cause the surcharge to be payable on a UK purchase if the overseas property is valued at less than £40,000, or if the beneficial ownership sits within another party. There are many types of ownership, such as certain usufruct rights, which mean the legal owner wouldn’t be treated as owning a major interest in the property, so it would not count for the 5% surcharge. If you have an overseas property with unusual rights in place, it’s worth seeking further advice.

When looking at the 5% surcharge you must consider any residential properties owned, regardless of where they are located. However, in some case property owned overseas may not cause the surcharge to be payable on a UK purchase, perhaps because the overseas property is valued at less than £40,000, or the beneficial ownership sits within another party. There are many types of ownership, such as certain usufruct rights, which mean that the legal owner would not be treated as owning a major interest in the property, so it would not count for the purposes of the 5% surcharge. If you have an overseas property with unusual rights in place it is worth seeking further advice.

You should prepare a will to set out who you would like to benefit from your assets (including your farm) on your death. It’s important to think about who you would like to benefit from your assets and what the tax implications might be. Inheritance tax needs to be considered on death, where a liability arises; this can be detrimental to farms with high capital asset values, where there may not be cash available to fund the liability. To help mitigate the inheritance tax due, there are two important inheritance tax reliefs which can apply to farms where certain conditions are met.

Our agriculture accountants will help you review the whole farming enterprise and your personal financial position to identify where inheritance tax reliefs are available. We can advise on the availability of valuable inheritance tax reliefs, including Agricultural Property Relief (APR) and Business Property Relief (BPR), and help structure your affairs to maximise the reliefs available.

As farming businesses become increasingly diversified, careful planning is essential to ensure relief is not lost. We can work closely with you to understand the full picture, providing clear, practical advice that supports both succession planning and the long-term future of your business.

Once your current position has been established, consideration can be given to whether you can improve the inheritance tax reliefs available to you and if you should consider giving assets away in your lifetime.

Few people can talk about their deaths comfortably with their family and loved ones, but it’s essential to have open and honest discussions so that everyone is aware of your wishes. This is particularly important when you have multiple children, some of whom are involved in the farming business and some of whom aren’t.