Budget 2013: Rural Bits and Bobs – bad news for cider makers and rural accountants

Budget 2013 offered few headlines for farming, the rural economy and rural property.  But as always there is devil in the detail, and some early warnings to watch for.

Major cuts in the departmental budgets for Defra and DECC will work their way through to the rural economy.  Only recently we have seen major cuts in the Environment Agency’s commitment to the maintenance of flood defences, with little real sign of commitment to green infrastructure solutions to this growing threat.  However, a new Agri-Tech strategy is to encourage investment in food and farming.

Other announcements of interest:

• National Insurance rebates for all businesses and charities from 2014 of the first £2,000 of employers Class 1 Contributions.  At a rate of 13.8% above the NI threshold of £148 per week, this will effectively exempt a wage bill of up to £14,492 after the weekly exemption has been taken into account.  So a business with two employees could be looking at a wage bill of nearly £30,000 before employers NI has to be paid.  Of course there will still be the cost and obligation to deal with employees’ NI.
• Corporation Tax is to drop to 20% from 2015, with a suggestion that the small companies and main rates will be aligned.  Perhaps another hint that rural businesses should consider an incorporated structure?
• Halts to any further rises in fuel duty and heavy goods vehicle road tax should be good news generally for the countryside, either indirectly in haulage and transport costs or directly for those farmers and other rural businesses who run their own truck.
• Special capital allowances for energy efficiency, currently at 100% of expenditure, are to be extended to carbon dioxide heat pumps for water heating and grey water re-use technology later this year
• Beer duty is to be cut effectively by 1p/pint, but all other wines and spirits are to rise in line with inflation.  No help for the apple and pear growers here as cider and perry will also see an increase in duty.  A shame for the chancellor to miss the opportunity to support this small but important domestic industry, especially for the producers of niche premium product.
• Simpler Income Tax for small businesses: a move to cash accounting for businesses below the VAT threshold, so no need to account for accurals and prepayments, debtors and creditors, no need to distinguish capital from revenue expenditure and capital allowances retained only for cars.  For many of the smaller businesses in the rural economy this will be a welcome simplification – if not good news for their accountants.
• We are stuck with the Inheritance Tax Nil Rate Threshold of £325,000 until 2017/18, but watch out for more consultation on the IHT treatment of trusts, 10 year and exit charges with a view to legislation in 2014.  This could be very important for rural estates and other property so often held in trust with a view to long term stewardship and guardianship.
• Anti-avoidance rules may have an adverse effect on rural estates.  An IHT effective way to secure loan finance for farmland improvements is to secure the loan against assets which are otherwise exposed to IHT, eg let cottages.  New proposals may mean that a loan like this has to be secured against the asset for which it was taken out, leaving the cottages exposed to IHT again and reducing the value of APR (Agricultural Property Relief) by offsetting the loan against agricultural property before relief is claimed.  Thanks to Rob Hitch at Dodd Accountants for spotting that one, explored in their own blog at: http://doddaccountants.blogspot.co.uk/2013/03/will-farmers-be-losers-from-todays.html  If it goes through it will be very important for rural estate planning and the maximisation of APR and BPR (Business Property Relief).

Turning to particular rural property points:

• Statutory residence tests are to be overhauled
• The Annual Tax on ‘enveloped dwellings’ with a value over £2 million is to be introduced.  Effectively these are larger houses owned by company and similar structures (‘non-natural persons’) in order to avoid SDLT on sale and transfer.  This could be one for caution in larger farm or estate situations, but there are exemptions for property held within genuine businesses.  Cautious scrutiny may be advisable here to consider interrelationships with Agricultural Property Relief from IHT, the balance of business and investment activity on an estate and so on.  An area where more homework is likely to be needed.  The rate starts at £15,000 a year, rising to £140,000 on houses over £20 million in value.
• There will also be a 28% rate of CGT on residentail disposals by ‘non-natural’ persons
• There are also some detailed changes to Heritage Property Maintenance Funds for IHT, watch this space for more detail in due course.
• Business Rates in England rise to 47.1p standard, and 46.2 p small business multiplier.

Other bits and bobs:

• There is to be a gradual elimination of the concept of Ordinary Residence for tax purposes – this effects people who spend part of their time abroad
• CGT Reinvestment Relief for Seed Enterprise Investment Scheme investment is to continue with gains in 2013/14 able to be reinvested for relief in that year and the following year.
• Employee shareholders will be able to enjoy CGT exemption on disposals up to £50,000, and Income Tax and National Insurance exemption on the first £2,000 worth of shares
• Entrepreneurs’ Relief from CGT is extended to share allocations under the Enterprise Management Incentive Scheme of less than 5%
• Pensions Tax Relief (important for farmers and rural entrepreneurs) sees the annual investment limit drop to £40,000 from 2014 (currently £50,000), and the lifetime allowance down to £1.25 million (now £1.5 million), with transitional provisions for those in the £1.25 – £1.5 million bracket.
• Chief Constables will be exempt from Corporation Tax (who knew?)

And finally a reminder: Black Beer becomes subject to alcohol duty for the first time next month since the 1930′s.  I hope to be reviewing some of the key measure in more depth over the next few weeks including the implications of the new Carbon Floor Price and other environmental aspects of Budget 2013.

 

The original version of this post also appeared on the RICS website’s budget coverage at: http://www.rics.org/uk/knowledge/news-insight/news/budget-2013-the-rural-view/

 

PEATLAND RESTORATION AND INVESTMENT IN THE SOUTH WEST

The Natural Environment Research Council has funded practical research work in the South West to develop a scheme for the practical restoration of peatland for water management, the reduction of atmospheric carbon and biodiversity habitat management.  This work has been led from Leeds and Birmingham City Universities, and supported with additional funding from South West Water (SWW).  A prospectus is planned to be one of the major outputs from the project, providing advice to landowners, farmers and land managers as to how a scheme could work, what factors need to be considered in deciding on site suitability, and how land managers can decide if participation is right for them.  The prospectus should also be helpful to potential investors in deciding if they wish to invest in the carbon and biodiversity aspects of the scheme.

The prospectus is now being prepared and the purpose of this synopsis is to invite feedback and comments on its overall structure, and the matters which it is proposed it will cover.  All comments are welcome.  Please send them to Charles Cowap, Project Team, at cdcowap@gmail.com.  Charles Cowap and Dr David Smith (SWW) are happy to discuss any questions arising from this work: Charles Cowap 07947 706505; Dr David Smith: 07824 460274 (dmsmith@southwestwater.co.uk).  There will be further opportunities to comment on the full prospectus in due course.

Introduction

• What this document is about
• How it is structured
• How it aims to help you to consider if PES (Payments for Ecosystem Services) is for you including some important factors to consider in deciding to sign up for PES
• Status of document in contractual terms
• Desirability of seeking independent advice

The proposed PES scheme

• What we are offering for SWW (South West Water) and other investors to ‘buy’: peatland management for water supply and quality, with an option to bundle carbon and biodiversity management/development for corporate CSR (Corporate Social Responsibility) purposes
• Potential interest for other investors in carbon and biodiversity benefits
• Background to ESS (Ecosystem Services) and PES more generally, including links to the development of a UK Peatland Carbon Code
• The relationship of this prospectus to the important and growing role of ESS and PES thinking in government policy and land management more generally

Basis (es) of offer

•  The ‘offer’ to landowners and managers interested in selling their ESS
•  The offer to companies and other potential investors in biodiversity and carbon in the south-west

Factors and issues for sellers and buyers to consider in deciding whether to join PES programme

• Contractual aspects: length of agreement, review terms, break clauses, succession, other key terms and what they mean
• Land tenure arrangements
• Effects on other interested parties, eg tenants, landlords, graziers, commoners, rights of turbary, manorial rights, owners of sporting and mineral rights, implications for succession and inheritance,
• Practical farming considerations
  • Series of sub-headings
  • Animal welfare and health considerations
  • Relationship with statutory schemes and designations (ESA, HLS, ELS, GAEC obligations etc)
  • Public liability and insurance questions/CROW Access Land
  • Other business considerations, eg relationship to diversification opportunities
  • Maintenance obligations and concerns
  • Taxation: VAT, Income Tax, Inheritance and Capital Gains Tax, Stamp Duty Land Tax [Corporation Tax]
  • Ongoing obligations [may be covered by contractual aspects or cross-linked]
  • Impact on capital values
  • Security/risk judgements

Decision Tree

Two decisions trees, one for site selection; the other to help land managers to work through the options.

Site suitability, eg

• Peatland - known mapped damage - further investigation by survey team – detailed mapping – determine if damage restorable – evaluate impact on farming activity – evaluate drainage/wetness implications for surrounding farmland

 

•  Identify all interests in site: tenure, other rights, designations, schemes
• Liaise with other interests and stakeholders
• Identify new management requirements
• Consider compatibility with existing management and schemes, and potential to gain funding from conservation related initiatives through providing more sustainable habitat
• Identify any needs for adapted management or farming policy
• Consider scope to release other resources for alternate uses
• For non-compatibility, evaluate ‘better’ option: in or out of PES and review for alternatives
• Assess financial benefits and costs

A suggested approach to financial aspects

Costs saved   Eg some livestock purchases	Extra costs, eg   Time for access to more difficult ground   Vet and med bills   Insurance   Feed   Machinery costs if contracting to be offered
Extra Revenue, eg   PES Income   Contracting opportunities for SWW	Lost Revenue   Eg some livestock LWG or sales
Balance positive: financially worthwhile - Consider capital and tax implications	Balance positive: not financially worthwhile

Conclusion: pulling it all together

Next steps and who to contact for further information

Please forward comments on this draft to:

Charles Cowap, MRICS FAAV

NERC Project Team

cdcowap@gmail.com

For further information or to discuss any points on this synopsis, please contact either Charles Cowap as above (or phone 07947 706505), or Dr David Smith, SWW, 07824 460274 (dmsmith@southwestwater.co.uk)

[Reproduced in full from a document circulated on 5 March 2013 to stakeholder representatives]

Development of a Peatland Ecosystem Services Scheme on the South West Mires and Moors

Slides presented by Dr David Smith and Charles Cowap at an evening meeting of the Agricultural Law Association, kindly hosted by Michelmores LLP at their Exeter Office on 26 February 2013.

Dr David Smith first reviewed work in recent years on the benefits of peatland restoration work in the south west, for water management, carbon capture and habitat and biodiversity management.

Peatland Rewetting in the South West from Charles Cowap

David then went on to explain why South West Water is interested in securing clean supplies of water from upland areas

Value of clean upland water for South West Water from Charles Cowap

Finally Charles Cowap presented the work he has been doing with South West Water in a project funded by the Natural Environment Research Council with Leeds and Birmingham City Universities.

Water, carbon and biodiversity on South West moorlands from Charles Cowap

Questions and discussions continued in a lively fashion for some time after the presentations, both formally and informally over refreshments kindly provided by Michelmores.
 

CPD Changes for Chartered Surveyors: Blogging doesn’t count

New CPD (Continuing Professional Development) Rules for chartered surveyors came into effect this month.  They are simple and straightforward, commit us to a minimum of 20 hours CPD a year and a requirement to record our CPD on the RICS website.

The new rules are a welcome simplification of the previous somewhat complex requirement concerning Lifelong Learning.  The sound thinking behind lifelong learning is retained, but its application is simplified.

All chartered surveyors, full time or part time, must achieve at least 20 hours of CPD a year and this must now be recorded online on the RICS website.  The process of recording is simple and straightforward, and you get the option to download a record of your CPD in pdf or spreadsheet formats.  I tried the new system for the last few months of last year and found it easy to use.  You can see my pdf file record on this link.

At least 10 hours of the annual 20 hour requirement must consist of ‘formal learning’.  Formal learning is distinguished by a clear statement of ‘Learning Outcomes’, ie a clear statement of what you should be able to do or know at the end of the session.  Here are examples of Learning Outcomes from some of the sessions I have run for clients:

• Enhanced familiarity with DCF (Discounted Cash Flow) approaches to appraisal in the context of the Red Book, associated guidance, and its concepts of ‘value’;
• Enhanced familiarity with modern applications of the Investment Method of Valuation;
• Appreciation of the scope for marriage, or synergistic, value arising from different investment approaches;
• Understand the implications of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 for professional advisers involved in insurance matters
• Understand the RICS Designated Professional Body Scheme
• Comply with the requirements of the scheme
• Distinguish insurance advice, recommendations and arrangements
• Deal appropriately with commission and disclosure
• Comply with the regulation’s training requirements
• Advise on matters to be considered in establishing a new tenancy agreement, both Farm Business Tenancies and succession tenancies under the 1986 Act
• Evaluate alternative tenure arrangements including contract and share farming, grazing and other agreements
• Supervise matters requiring attention during the continuation of a tenancy, eg repairing responsibilities and other tenancy obligations of landlord and tenant
• Prepare for and undertake Rent Reviews in accordance with legal requirements and published guidance
• Advise on the termination of farm tenancies
• Consider the valuation requirements which arise on the termination of a tenancy
• Advise on succession issues following the death or retirement of a tenant farmer
• Understand the various dispute mechanisms available to resolve matters which cannot be settled through negotiation, and the surveyor’s role within them.

And so on!  All the RICS Web Classes include Learning Outcomes (including my rural ones) so perhaps this would be a good year to try this very cost effective form of CPD for the first time.  The details can be found in one of my previous blogs and on the RICS website.

A new requirement is for CPD to include an update on professional ethics at least once every three years, starting from 1 January 2013.  A straightforward way to cover this is via the RICS Online Ethical Standards Walkthrough Module, which is also free and provides about an hour of Formal CPD.  But other forms of CPD will also touch on ethical standards, as my own CPD record shows.

A helpful summary of the new CPD requirements has been issued by the RICS on its CPD webpage.

Sadly the guidance makes it clear that running a personal website, blog or newsletter cannot count as CPD.  Yet I have found that blogging on new developments has been enormously helpful in developing my own understanding of them.

Nevertheless I’d be delighted to hear from you if you would like to discuss your own or your organisation’s CPD requirements, tailored to specific requirements and designed to qualify as ‘formal learning’ for CPD purposes and including the ethical aspects where required.

2012 in review

The WordPress.com stats helper monkeys prepared a 2012 annual report for this blog.

Here’s an excerpt:

600 people reached the top of Mt. Everest in 2012. This blog got about 7,000 views in 2012. If every person who reached the top of Mt. Everest viewed this blog, it would have taken 12 years to get that many views.

Click here to see the complete report.

Power of Attorney: add to your succession and continuation planning list

Power of Attorney is a vital consideration in succession/continuation planning – but rarely mentioned in published guidance on these topics.  Christmas may not be the best time of year to look at succession and continuation planning, but the month or two at the start of the year can offer pause for reflection when days are short, farming or estate activity is at a low ebb and the annual tax return it out of the way.  At its simplest, the grant of a power of attorney allows your appointed ‘attorney’ (or attorneys) to manage your affairs.

Lasting Powers of Attorney (LPAs – not to be confused with local planning authorities or the Law of Property Act 1925) are covered in England and Wales by the Mental Capacity Act 2005, and they are administered by the Office of the Public Guardian.  Comprehensive information and step-by-step guidance can be found on the government website, https://www.gov.uk/power-of-attorney/overview.  Lasting Powers of Attorney have now replaced ‘Enduring’ Powers of Attorney for practical purposes, although the latter may still be encountered and used – but the rules are different.

There are two types of LPA: (1) Property and financial affairs, and (2) Health and Welfare.  They are not interchangeable so if you want to grant full powers of attorney you need to make both types.  For example your attorney for property and financial affairs may be able to sell your house for you, but not to make decisions on your health treatment if you were unable to do so yourself.  You do not need to be incapacitated for an attorney to act on your behalf, unless the power of attorney you have granted says so.

Why could this be important in a family business?  Say Arthur is a sole trader or senior partner in a family farming business.  He suffers a stroke at the unfortunately age of 45.  Decisions need to be made about his business, and about various choices in his treatment.  The existence of a Lasting Power of Attorney, properly registered with the Court of Protection, will allow Arthur’s attorneys to make these decisions and implement them on his behalf.  Alongside a will, there is every reason to say a Lasting Power of Attorney is a vital tool in the succession and continuation plan for any family business.

So how should Arthur make his two powers of attorney (Property and Financial; Health and Welfare)?

1. Obtain the official forms and guidance from the government website;
2. Consider who he wants to act as his attorney, and whether he wants two or more attorneys.  The appointment of at least two attorneys is desirable in case one proves incapable of acting (eg death, bankruptcy, mental incapacity).  Attorneys can be appointed to act jointly – in which case they must decide everything and act together at all times; or jointly and severally – so that each attorney can act independently of the other.  The appointment can also be hybrid – joint action for the big issues (like selling real property); joint and several for smaller items like the payment of routine bills.
3. Consider the nomination of ‘replacement’ attorneys.  These attorneys are only called into action if the first attorneys are incapable of acting.  This might include the situation where one of a pair of attorneys appointed to act jointly is unable to do so.  In that case, the replacement attorney takes over from all the original attorneys.
4. Consider who needs to be notified that the LPA is being made.  This list might include close relations, business partners and key associates.  These people are listed on the application form, must be notified of the proposed LPA and can therefore object to its creation (perhaps because they think the nominated attorneys are unsuitable, or because the donor lacked competence to make a LPA for example).
5. The forms are filled in.  This must be done in the right order: first the donor form (the person granting the LPA); then the certificate; then the attorney(s) themselves.  The Certificate must be given by either certain types of professional (eg GP, solicitor) or somebody who has known the donor for at least two years and feels confident in confirming the donor’s competence to make a LPA.  Only one certificate is needed where there is a list of people to be notified of the LPA, but two are needed where nobody is listed.  Some people are specifically barred from certifying a LPA, eg anybody associated with a care home where the donor is living.
6. The LPA cannot be used until it has been registered with the Court of Protection. This is meant to take up to six weeks although the current rate is up to 10 weeks for a straightforward application.  The attorneys apply for registration and do not need to do this until they want to use the LPA.  However, it is generally better to apply straightaway in case there are objections or administrative errors in the making of the application – if registration is delayed it may be too late to rectify the problems with a new LPA (eg the donor is no longer competent to make a LPA).  The LPA itself can impose restrictions on its implementation (eg not effective until the GP has confirmed that the donor is no longer competent to act) or this can be left for the attorneys to decide – confirmation of registration does not mean that the attorneys have immediately ‘taken over’ the affairs of the donor.  Delayed or invalid applications may leave no choice but to apply to the courts for an order – likely to be a far less certain, expensive and time consuming process.
7. Along the way it may of course be very sensible to take legal, property, health and financial advice.  However the government seems to have gone out of its way to make the actual appointment and registration of attorneys under a LPA a very straightforward process.  The current fee to register a LPA is £130, so making both types would cost £260 before any professional advice or certification fees (eg the family doctor may well want a fee to cover his or her efforts in certifying the application).

Effective LPAs could make all the difference between stalled business or family affairs, and the ability of an attorney to step in at short notice and act in the donor’s best interest while he or she is incapable of doing so for themselves (either short term or long term).  For anybody in charge of a business, or with family dependents to consider, this could be a vital safeguard.  And don’t forget the importance of ‘replacement’ attorneys because people don’t always die or become incapacitated in the right order as recent family experience has demonstrated.  I would be interested in readers’ experience with LPAs (or the lack of them), or your response to the considerations in this article.

Well worth a look as we look forward to the new year.

As ever this article offers no more than a summary on LPAs, and there is much more detail to be found in the Office of the Public Guardian’s guidance (see website above) but I hope it will act as a useful prompt to readers.

Farming for Food Plus ~ Food+ Farming

Projects are now trying to bring the management and appreciation of nature’s services – ecosystem services – to life.  Here is a case study I prepared for a seminar, part of one of these projects.  Please share your views in the comments section, or via twitter to me, @charlescowap

The fictional case study below has been designed to enable us to discuss three key questions in the context of Ecosystem Services (ESS):

1. What ESS does and could this farm offer?  If you are uncertain about what counts as an ESS, there’s a diagram below which should help.
2. How can they be measured and managed?
3. What practical issues does the study illustrate as far as the future development of ESS in a farming context is concerned?

Case Study

Red Earth Farm is a mixed tenure farm of total 500 hectares.  Of this 400 ha is rented under the Agricultural Holdings Act 1986, and the remainder is owned (but subject to a mortgage with the Agricultural Mortgage Corporation).  The main farmhouse and two workers’ cottages are located on the rented land along with the farm buildings.  The owned land consists exclusively of bare land with no dwellings or buildings.  The land abuts the west bank of the River Severn to the north of Tewkesbury (both the tenanted and owned land).

The landlord has invested nothing in the farm since the present tenant, Ivor Gripe took on the tenancy in 1978.  Ivor himself however in his early years invested heavily in field drainage, water supplies, a new dairy unit for 150 cows and a 1,000 tonne grain store.  Sadly all this is now showing its age.  Ivor has had several warnings about the adequacy of the grain store for the Assured Combinable Crops Scheme, the dairy inspector has issued a list of required works which must be undertaken over the next year and the Environment Agency is concerned that silage effluent, slurry and dairy washings may be getting into the river system (albeit on a relatively small scale).

This will require major investment; the absentee landlord has once again affirmed that he has no intention of helping with any of it and, at the age of 67 years Ivor is pondering the economic sense of further investment on which he will recoup little or no return.  His son and daughter could, in principle, be eligible for succession to the tenancy but given the economic straits experienced by farmers in recent years it looks increasingly likely that they will seek their fortunes elsewhere (Alison is a veterinary surgeon and Andrew a chartered accountant).  Ivor has always reinvested every penny in the farm, which of course is also the family home.

All of the land is registered under the IACS scheme (Integrated Administration and Control Scheme) for SFP (Single Farm Payment) purposes, and Ivor has also entered an Entry Level Stewardship Scheme (ELS).  This mainly covers hedgerow management, ponds, protection of a small archaeological site, grassland management for farmland birds.

-oOo-

The following summary of ESS is taken from the TEEB (The Economics of Ecology and Biodiversity) Synthesis Report published in 2010.  The full report can be seen on the TEEB Website (link here):

TEEB Summary of Ecosystem Services

 

Please do take this opportunity to share your views.  For chartered surveyors and others with a professional CPD obligation, time spent working on this could even count as self-directed CPD – evidenced by your considered opinion in the comments below!