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/