The rural business community can be relieved that the Emergency Budget measures have not been as painful as they might. As promised the Chancellor has ensured that those with a business status are less affected than non-traders.
Landowners will be pleased that the budget has not taken away any of the valuable Inheritance Tax reliefs however non-traders are likely to suffer from the increase in the VAT rate.
With the increase in Capital Gains Tax widely anticipated, many will have take steps to mitigate the effects of the increase in rate by crystallising gains prior to the budget.
Headline points affecting the rural property/business community:Income & Corporation Tax
• Personal allowance for under-65s to increase by £1,000 from April 2011
Whilst this is good news for lower rate taxpayers it is to be funded by a corresponding decrease in the level at which the higher rate of tax applies.
• Small business corporation tax rate reduced from 21% to 20% from April 2011; main rate reduces from 28% to 27% and further thereafter
This will benefit farming businesses which have a corporate structure but few will be large enough to enjoy the reductions in the main rate.
• Annual investment allowance to drop from £100,000 to £25,000 in April 2012
Serious consideration should be given to capital investment in the next two years while this valuable relief remains.
• Rate of capital allowances on ‘General Pool’ of plant and machinery to reduce from 20% to 18% from April 2012
This will further erode tax relief on assets in the farming businessVAT
• VAT to rise to 20% from 4th January 2011
Farms and landowners with residential and commercial property on which they pay un-recoverable VAT will be worse off as a result of this change. Consideration should be given to incurring this expenditure before the change. E.g. a £100,000 refurbishment will cost £2,500 more after January 2011.Capital Gains Tax (CGT) increase in tax rate and Entrepreneurs’ Relief limit from midnight tonight
• CGT remains at 18% for lower rate tax payers but increases to 28% for those with taxable gains and income above the higher rate threshold of £37,400
This means that you could sell a little over 10 acres of land with a £4500 gain per acre and still reach the higher rate of CGT even if you do not have a penny of other income.
• No change to annual exempt amount of £10,100 for 2010 -11; inflationary increases thereafter
There was speculation of this allowance being cut but investors appear to have been spared this.
• Entrepreneurs relief (which reduces the effective CGT rate to 10% on business assets) increased to a lifetime limit of £5m (up from £2m)
As far as we can tell the 10% rate is not adjusted by the increase in CGT rate mentioned above. Further detail will no doubt emerge soon.Inheritance Tax (IT)
• No new announcements; freeze of 2010 level of £325,000 until 2014/15 remains
It will be a relief to the farming and land-owning community that Agricultural Property Relief has remained un-touched when many had predicted that it would come under attackGeneral
• Furnished Lettings – the proposal inherited by the government to repeal the special tax rules for furnished holiday lettings will not be implemented but the government will consult on adjusting the current regime to comply with EU legal requirements. Any changes will be with effect from April 2011.
• Stamp Duty Land Tax – the government is to review the effectiveness of SDLT relief for first-time buyers but for the moment this remains in place