How do taxes impact on your farm business?

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This month’s JPH Law column features advice on the impact of taxes on your farming business from Kate Ervine’s associate – Kevin Neary. Kevin is a qualified Trusts and Estates practitioner with expertise in dealing with taxation issues.

According to Benjamin Franklin, there are only two certainties in life: “death and taxes”. Neither may be much fun to talk about, with the chancellor announcing his budget for 2016, it is definitely a useful time to think about the latter.

Capital Gains Tax (CGT) is charged on any transaction which produces a profit (‘gain’) other than in the course of your normal farming business. So while, for instance, the sale of cattle does not attract CGT; importantly for the farming community, selling or gifting land does – often producing unforeseen and hefty tax liabilities.

Although the rules surrounding CGT are complex, there are some simple steps you can take to save money:

Keep Good Records

l You can deduct all reasonable costs and expenses from your Capital Gains. This includes legal fees, agents’ fees, and the cost of improvement works, so make sure to keep receipts and invoices for all such outgoings. Remember, organisation is the key to success.

Use Reliefs and Allowances

Reduce your tax bill by using all of the tools at your disposal, such as:

l Your annual allowance for CGT - if the gain on what you dispose of is below £10,000 after deducting all allowable costs and expenses, no tax is payable.

l Roll-over relief – this can be used to mitigate, and potentially eliminate, CGT when you give away land which forms part of your business to a child who intends to also run a farming business.

l Gift Hold-Over Relief – this can be useful when you give away business assets or sell them for less than they are worth in order to help the buyer.

Be Practical

Common sense steps can go a long way too, for instance:

l Take account of the market – if you intend to gift land, you should do so before it rises in value.

l A piece of land with planning permission is significantly more valuable than one without. When gifting land, gift it without planning permission and save.

l Spouses have two Capital Gains Tax allowances – if land is in both names and is gifted or sold, tax will be lessened.

Be Careful

l HMRC may challenge a transfer into joint-names which is made very shortly before a gift or sale.

l You are entitled to make use of all reliefs, exemptions and allowances to reduce your tax bill, but you can be prosecuted for giving false information about the tax that you owe.

Overlooking CGT is a costly mistake for many, but by following these simple steps and seeking professional advice, you can save yourself money and any unpleasant surprises.

Kevin Neary is a Director in Commercial Property and Taxation at Portadown based Solicitors Firm JPH Law Limited. For further information on JPH Law visit: www,jphlaw.co.uk or contact Kevin on KevinNeary@jphlaw.co.uk T 028 38 333 333.