Agriculture.

Find out more about how we help agriculture clients

Download Brochure

The challenges faced by farmers, landowners and agribusinesses are often quite different from those of a typical business owner; government regulation, fluctuating commodity prices and even the weather are all factors that drive success.

Our Cambridge based agriculture team have been working with farmers for over 100 years and understand these complexities. Whether you are a traditional farming family, a new landowner or have recently moved into non-farming ventures we know that each and every client is unique in their objectives and resources.

Our specialist accountants, advisers and taxation experts come together to provide a service that is truly tailored to meet your specific needs. And because farming rarely fits into ‘normal’ office hours we are always flexible both in terms of how and when we work.

How we can help

I want to pass my farm onto someone after my death. How do I plan for this?

You should prepare a will to set out who you would like to benefit from your assets (including your farm) on your death.  It is 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 businesses, particularly 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.

It is important to review the whole farming enterprise and your personal financial position to identify where Inheritance Tax reliefs are available. Agricultural Property Relief can provide relief against Inheritance Tax at 50% or 100% of the agricultural value of an asset. Where farms are heavily diversified or have non-agricultural value, e.g. hope value for land development, Business Property Relief can provide relief at either 50% or 100% of the value of an asset.

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

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

The rules surrounding Inheritance Tax and the reliefs available are complex and so it is.

How will the phasing out of the Basic Payment Scheme effect my farm’s finances?

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.

How will farm diversification affect my tax position?

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.

How does the latest Budget affect agricultural businesses?

On 29 October 2018, the Government announced, the self-called “budget to support new housing, high street and local services”. Despite the title, the budget did have various changes that will affect agricultural businesses.

Changes to capital allowances included an increase in the Annual Investment Allowance (AIA) from £200,000 to £1,000,000 for expenditure from 1 January 2019. The AIA allows businesses to receive 100% tax relief for plant and equipment in the year of purchase up to £1,000,000 which should be ample for typical farming businesses.

Other changes to capital allowances includes the introduction of the new Structures and Buildings Allowance. This allows tax relief against profits for commercial structures and buildings at 2% a year; assets which previously attracted no income tax relief.

In terms of income tax, the personal allowance was set at £12,500 for the 2019/20 tax year and the higher rate threshold was set at £50,000. No changes were announced for corporation tax aside from confirmation that the rates will fall from 19% to 17% from 1 April 2020.

The Government relaxed caps of borrowing to Local Authorities for them to build houses. This may generate opportunities for those who have land with the potential for residential development.

Fuel duty was frozen and vehicle tax saw an increase based on the Retail Price Index.

Speak to one of our experts

Get in touch