A tax planning update

In addition, the significant changes proposed in October 2024 in relation to Inheritance Tax have not, to date, been altered.

The amount which an individual can earn tax free, the personal Allowance, £12,570 is frozen until April 2028, as is the basic rate Tax Bank of £50,000.

As personal incomes increase, this means that individuals will be paying significantly more tax. A company pays corporation Tax at different rates, depending on its taxable profits.

Taxable profits up to £50,000 are taxed at 19 percent, and as the company taxable profits increase, the rate of Corporation Tax increases peaking at 25% on taxable profits over £250,000. A sliding scale of tax between 19 percent and 25 percent applies to taxable profits in the £50,000 to £250,000 bracket.

These corporation tax rates are confirmed for the lifetime of this Government. Facing high tax over the next four to five years. Farm businesses require to implement tax planning actions, in order to retain as much annual profit as possible within the farm.

Meanwhile, a review of business structure is timely: a sole trader, partnership or company.

Upgrading machinery and equipment is necessary for the efficient and safe operation of the farm.

Where farm buildings are to be constructed, careful planning of the structure can have significant tax saving consequences. Where a building designed to be moveable, steel bolted to the concrete with bolts exposed, coupled with movable concrete panels may allow the expenditure to be eligible for the 100 percent plant and machinery allowance, as opposed to the 3 percent Structures and Buildings Allowance. This requires detailed consultation with the farm accountant.

Other tax planning considerations include profit averaging for sole traders or partners and the role of pension contributions. Where family labour is available and working on the farm, this should be paid for at a reasonable and appropriate rate.

Where a son or daughter is working on the farm and attends a third-level course directly related to farming, for at least one academic year, the farm may pay a training allowance up to £15,400 per year. Inheritance Tax, as part of succession planning is very necessary both to minimise inheritance tax and to ensure the efficient succession to the next generation.

Now is the time to have family discussions in consultation with the family solicitor, accountant and bank to identify the most appropriate options and to make full use of the exemptions from inheritance tax that are available.

The lifetime exemption of £325,000 per person, the annual exemption of £3,000 per person and annual gifts out of income exemption are valuable. In addition, the current unlimited Agricultural property and business property relief should be considered.

Non-Tax Succession Planning actions which require consideration include making a will, having two names on the business bank account and creating Lasting Power of Attorney.

Now is the time for farm families to have open discussions within the family while taking advice from solicitor, accountant and bank.

There are many solutions available to ensure succession of the family farm, but action is required to be ready for April 2026.

For further information, telephone (028) 8224 1515