Farming tax breaks: true or false

Saturday’s BC Radio 4 Today programme broadcast an interview with Prof Dieter Helm, the economist who chairs the government’s Natural Capital Committee.  Prof Helm made some cogent points about the ad hoc development of various policies for the agricultural industry, calling farmers subsidy junkies along the way and highlighting ‘exemptions’ from tax.  He particularly mentioned Diesel, Rates and Inheritance Tax.  But is Prof Helm right?  Are farmers treated any differently than the rest of us?

Diesel.  Farmers use so-called Red Diesel in their tractors and other land machinery.  It is red because it has been stained to distinguish it from diesel on which petroleum duties are levied (often called DERV – Diesel Oil for Road Vehicles, Diesel Engined Road Vehicles).  Red diesel is also called Gas Oil.  Farmers must use DERV in vehicles which must travel on public roads a lot for example pick-up trucks, or tractors used extensively on the public road.  Other industries that use diesel engines off the public road also use red diesel, notably the construction industry, quarrying and rail transport.  Boats with diesel engines also use red diesel, whether for commercial or leisure operations.  Customs Officers are regularly to be found at agricultural markets and country shows ‘dipping’ vehicle tanks for the tell-tale red stain.  So no difference here from other industries: we all pay more fuel tax on vehicles which go on the public road but don’t have to pay it on off-road vehicles.  VAT is also payable on fuel and in this respect the farming industry is also no different from other industries.  As an aside, landowners who do not farm are generally unable to reclaim VAT.

Rates:  Farming has been exempt from the general property rate since the 1930’s.  The history of agricultural rating goes back further to the 19th century when farm land was generally subject to a reduced rate.  It is however little known that about 11% of the land area of England and Wales is subject to a rate on farmland, in the form of the rates levied in the Internal Drainage Districts.  These are used to pay for the upkeep of local drainage systems which benefit farmland and other properties in the areas concerned.  Like the rest of us, farmers pay Council Tax on their houses.

Inheritance Tax: Farmers may benefit from Agricultural Property Relief on the value of most of the farm when they die.  For an owner-occupier who satisfies the rules the rate of relief is 100% of the agricultural value of the property, which in practice can be less than its full market value.  So a special concession for farming?  Well no not really.  Other businesses (and indeed farming businesses on their other assets) also qualify for Business Property Relief.  This relief is also set at 100% for most cases and is given against the market value of all the assets used in the business.  The idea behind both reliefs is to keep capital in the business.  For sure, agricultural landowners can also claim a variety of agricultural property relief but the radio remarks were about farmers not landowners.

Business Property Relief has some further surprises.  For example many of the shares quoted on the Alternative Investment Market (AIM) also qualify for 100% Business Property Relief.  Furthermore the income from those same shares is taxed at lower rates of Income Tax than earned income including trade profits: the first £5,000 of dividends are free of any Income Tax, basic rate income tax is levied at 7.5% instead of 20%; higher rate at 32.5% instead of 40% and additional at 38.1% compared with 45%.  Grateful thanks indeed for investors who are willing to invest some capital in AIM stocks and wait for the income and gains to roll in (while of course accepting the risks of losses).

To highlight the comparison, consider £5 million invested in a farm, another business or AIM stocks and shares.  In each case the combination of reliefs could reduce the taxable value of this investment for Inheritance Tax purposes to zero.  Along the way the owner of the shares will pay less Income Tax per pound than either the businessman or the farmer, whose tax bill will be broadly similar at similar levels of profit.  The farmer’s return on his £5 million is however, likely to be considerably lower than either the share owner or the businessman, with or without subsidies.

The interview on Radio Four can be heard at this link for the next 29 days.  It starts at 1 hr 10:03 mins and finishes at 1:20:50.   It’s fairly characteristic of the uninformed and poor insight shown into questions of rural, farming and food policy shown by so much of our public media.  John Humphrys and Radio 4 really should be able to do better, even in just 10 minutes.

–ooOoo–

A few copies of Concise Rural Taxation 2016/17 are still available for any reader whose appetite has been whetted for rural taxation.  See the separate tab for order details, or wait until the autumn for the next edition.

£1 million party to celebrate Agincourt: Don’t take the budget too seriously

A few headline points for the rural economy from today’s budget, to add to the mainstream reporting:

  1. Deeds of variation for Inheritance Tax: a consultation is to report by Autumn.  It is therefore important to pursue any deeds of variation which may be needed straightaway, and to review wills to ensure that deeds of variation will not be required.  Their days may now be numbered.
  2. No more tax returns: sounds good, but will digital tax accounts be any better?
  3. Annual Investment Allowance.  It won’t come down from £500,000 to £25,000 after December this year.  We will be told in the Autumn statement what the new rate will be.  This timing is more appropriate, says Osborne.  Two months’ notice?  More appropriate? So much for a long term view on business investment needs.
  4. Compulsory Purchase Reform/Review: consultation now issued, responses by June this year.  First impression: more tinkering, much like the story of piecemeal reforms since the Land Compensation Act 1973.  Key points seem to include earlier payment of compensation (ahead of entry); better compensation; more encouragement to pay ‘over the odds’ to avoid other problems in the acquisition process; reconsideration of the ‘material detriment’ provisions.  There doesn’t seem to be much on blight, either statutory or discretionary and more generally on the interests of property owners and occupiers who lose no land but whose interests are badly affected by public development.
  5. Local Enterprise Partnerships and Forestry: who will LEPS be forced to marry next at the muzzle of a shotgun?  £1 million for for forestry schemes which are brought forward with LEP support – not one to hold your breath for.
  6. Rural broadband (an interesting concept): a universal service obligation of 5 Mbps everywhere may facilitate satellite access.  Details are far from clear, but vital to the successful delivery of this.
  7. Farmers’ profit averaging: the averaging period extended from two years to five year with effect from April 2016.  How will this work?  We don’t know yet: consultation is to follow.
  8. Flood Defence Relief: for expenditure against Income Tax or Corporation Tax – an interesting possibility to consider in the context of the development of ecosystem services.  For example Farmer A will manage his riverside fields to accept surplus water in order to protect Manufacturer B’s factory.  Will B be able to get tax relief for the money he pays to Farmer A for this purpose?
  9. Subletting within residential tenancies: needs thinking through but apparently tenants may be able to override restrictions in their leases.  Form an orderly queue ….
  10. CGT Entrepreneurs’ Relief: various loose ends to be tightened up.  An ideal headline for scaremongering but unlikely to be of concern to ‘genuine’ cases.

How seriously should we take all this?  Paddy Power are offering the following odds on the next government:

  • Labour minority 3/11
  • Conservative minority 7/2
  • Conservative majority 9/2
  • Labour SNP Coalition, and Conservative Lib Dem coalition 5/1

Whoever wins there will be another budget early in the new Parliament.  That’s really the one to watch for rather than today’s dying embers.  Let’s hope the big Agincourt party survives the general election – never mind the charisma of Henry IV’s speech (as Shakespeare would have it anyway) but do remember the skill and discipline of the English and Welsh archers.  Could this be George Osborne’s silent blow against UKIP?

Valuation: Cross-roads or cul-de-sac?

This was the title of my presentation at the RICS Wales Rural Conference held on Tuesday 9 December 2014 in Llandrindod Wells.  Here are the slides.

The contrast between the complexities of valuing woodland for taxation purposes and renewable energy installations is meant to indicate the broad sweep of the challenge facing the modern rural valuer. This is a challenge which is likely to be become broader and more complex with the need to consider the valuation of natural services and capital. Equally the accountability of valuers is only set to grow as the two case updates demonstrate.

Defra: a challenging brief

The Conversation asked me to write an appreciation of Owen Paterson’s tenure as Secretary of State for the Environment. It was published last night under the title, Badgers may cheer Owen Paterson’s exit from Defra, but not everyone feels the same

A white, middle-aged, country man who nevertheless forgot to take his wellies to a flood zone a stone’s throw from one of his infamous badger cull areas, now finds himself culled. Is this how we should remember the Rt Hon Owen Paterson MP, Secretary of State for the Department of the Environment, Food and Rural Affairs, September 2012-July 2014?

Paterson’s appointment to Defra was popular with farmers and landowners because he was seen as one of their own: MP for that most rural of constituencies North Shropshire, and a leading figure in the European tannery trade. Defra was badly in need of a safe pair of hands after Caroline Spelman’s disastrous attempt to privatise the Forestry Commission. Moving across from the Northern Ireland brief, Paterson was to prove an able choice in this regard.

That is not to say the Defra tractor ploughed a steady course during his tenure. Continue reading “Defra: a challenging brief”

Adding Value to Land: 10 things to think about

Presentation from the RICS National Rural Conference held on 19 June 2014 at the Royal Agricultural University, Cirencester.  Ten ideas which will be important to future success in land management.

 

The Privatisation of Biodiversity

Professor Colin Reid and Dr Walters Nsoh presented the conclusions of their research programme at the University of Dundee on 20 February 2014. Their research has focussed on the legal implications of the development of new ‘markets’ in natural capital. The emphasis tended to focus on biodiversity offsetting and payments for ecosystem services. Law Commissioner Prof Elizabeth Cooke provided an extremely helpful update on progress with the introduction of conservation covenants in England and Wales. The Parliamentary Draftsman is working on draft legislation following the Law Commission’s review last year so we are likely to see a new type of land covenant in the next two years or so. These covenants will be distinct because Continue reading “The Privatisation of Biodiversity”

Who wants what this time?

Systemic Solutions at the landscape-water interface was the title of a workshop held at Bristol Aquarium on Monday 10 February 2014, and I was asked to speak about the landowner’s perspective.

Who want what this time? was my opening question.  When dealing with anything in relation to rural land it’s vital to realise that you are rarely starting with a blank sheet.  Are you dealing with the Somerset Levels or the Cambridge Fens, Exmoor or the Peak District, or something in between?  Some of the items that may already be listed on that far-from-blank sheet include: Continue reading “Who wants what this time?”