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.

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Budget 2016: Rural and property points

Headline points from the 2016 Budget for the rural economy and property. Get out of sugar, get into tunnelling, run a micro-business on the side, infrastructure needs you, take your capital gains now, incorporation is looking better and better unless you intend to sell your professional services to the public sector, drink whisky and beer not wine. Despite this, old age and death are beginning to look expensive.

A £3.5 bn reduction in public expenditure is not intended to dent George Osborne’s claim that, “We [ie the Conservative Government] are the builders”. Practically this means Continue reading “Budget 2016: Rural and property points”

Autumn Statement 2013

Good news if you want to employ a youngster, go to university, rent a shop or use a lot of fuel.

The Autumn Statement predicts increased growth, up to 1.4% from 0.6% for 2013, and the total in employment by 2018 of 31.2 million.  In other words, about half the population.

Fuel duty is to be frozen for the rest of this Parliament.  Employers will not have to pay employer National Insurance on under-21 year olds, unless they are being paid more than £813 a week (in other words higher rate taxpayers).

Business Rate rises will be limited to no more than 2% irrespective of higher inflation in 2014/15, and retail property will benefit from a rate discount of up to £1,000 in 2014/15 and 2015/16.  This will apply to properties with a rateable value of less than £50,000.  In addition new occupiers of shops which have been empty for at least 18 months will get a 50% discount on their rates bill.  Small Business Rate Relief will be doubled from April 2015.

Local authorities will be encouraged to sell high value vacant social housing in order to reinvest in new housing, and their revenue account borrowing limits will be raised in order to encourage social housing investment.

The Personal Allowance for Income Tax increases to £10,000 next April and a new form of Married Couples Allowance makes its debut.  It applies to civil partners as well, but don’t get too excited.  The transferable tax allowance of £1,000 arrives in 2015/16 and is NOT available where either party is a higher rate taxpayer.  So who does this help?  Couples where perhaps one partner isn’t able to use their own tax allowance in full and the other partner is an ordinary rate taxpayer.  So the resulting benefit is likely to be no more than £200 a year.

If your overseas clients are thinking of selling UK residential property they had better act now, as CGT is to be introduced on non-residents’ disposal of UK residential property.

Energy

Fracking – onshore oil and gas exploration – will receive a new tax allowance with immediate effect.  Details are thin at this stage however.

A new fund to help private landlords to improve the energy efficiency of let property is to be introduced.

Grants of up to £1,000 will be available to make substantial energy investments in property newly purchased over the next three years.

Infrastructure

The National Infrastructure Plan gets a makeover, but don’t get too excited.  Buried in the small print of the UK Insurance Growth Action Plan is the expectation that 70% of planned expenditure is expected to come from the private sector (meanwhile Defra sees cuts to its budget of £19 million next year and £18 million the year after).  Setting aside this small reservation, the list of projects includes:

  • New nuclear power at Wylfa in North Wales;
  • Railway station improvements at Gatwick Airport;
  • Improvements to the A50 at Uttoxeter by 2015/16;
  • The A14 improvements near Cambridge will not include a new toll road;
  • A new £10 million competition for ‘hard to reach’ broadband will launch in 2014, which may therefore be helpful to the less accessible rural areas;
  • Topical on the day that an Autumn Statement is accompanied by the threat of the worst floods on the East Coast since 1953, we are promised a list of key flood defence projects by the time of next year’s Autumn Statement;
  • There is also to be a £10 million prize pot for the first town or city to set up a pilot driverless car project.

A new Infrastructure Court is also promised – so look for some interesting relationships with the work of the Planning Inspectorate’s Major Infrastructure Unit (formerly the Infrastructure Planning Commission!).   So will this be IPC2?

The UK Insurance Growth Action Plan includes a chapter which introduces the investment of £25 billion by six insurance companies in infrastructure over the next five years.  They will be looking for commercially and economically viable economic and social infrastructure projects, most probably in transport, housing, energy, health and education.  This can include major projects led by private sector sponsors.  Projects already undertaken include campus developments, student accommodation, Alder Hey Children’s hospital.  And look out for a new logo to be displayed on infrastructure emerging from this initiative!  It’s a shame however, that this makes no mention of ‘green’ infrastructure – surely an attractive opportunity for the insurance industry where the reduction of flooding risk is on offer?