Rural Sector Could Face Significant Change in the Budget

Wednesday 11 March marks the date for Chancellor Rishi Sunak’s first budget. The rumour mill has been working overtime in advance of that with a number of issues critical to the rural – and in particular the farming – sector flagged up. 

Whilst only the Chancellor’s speech on the day will confirm any changes, Martyn Dobinson, Partner, Saffery Champness, and a member of the firm’s Landed Estates and Rural Business Group says:
"There have been a number of possible significant changes mooted, including fuel duty, entrepreneurs’ relief, and inheritance tax reliefs for agricultural and business property."

Rishi Sunak

Rishi Sunak

Fuel Duty

Having enjoyed an almost ten-year freeze, fuel duty could be in line to rise, despite a Conservative election pledge to hold steady, and an additional 2p has been speculated. Martyn Dobinson says:
"A rise in fuel duty isn’t just an extra tax on the motorist. It is a tax on business, and business services such as contractor overheads, deliveries and transport costs.  If we don’t see a rise rolled out this year it could happen in 2021. An increase in fuel duty is, however, mitigated somewhat by fuel costs having fallen to their lowest for some time."

Entrepreneurs’ Relief

The Conservative Party manifesto promised review and reform of Entrepreneurs’ Relief (ER). This relief was introduced in 2008 and currently allows a 10% tax rate on eligible capital gains on the sale of a business, up to a lifetime limit of eligible gains of £10m as opposed to the standard rate of capital gains tax of 20%. Martyn Dobinson says:
"With ER it’s not so much a question of will the rules change, but what will change.  We don’t expect to see the relief abolished completely, as that would clearly be anti-business, but changes might include a reduction in the lifetime limit, a further increase in the required qualification period, an increased tax rate or the introduction of an age threshold. I think everyone agrees that change is coming."

Agricultural Property Relief (APR)/Business Property Relief (BPR)

Changes to APR and BPR reliefs from Inheritance Tax (IHT) have also received significant coverage. These reliefs are used extensively across the farming sector and have been the subject of reports and studies by various groups over the last couple of years, including the Office of Tax Simplification, and more recently, the All Party Parliamentary Group (APPG) on Inheritance Tax and Intergenerational Fairness, which published proposals for radical reform of the IHT system earlier this year. Martyn Dobinson says:
"The removal of these reliefs and resulting IHT charge on farmland and business property would be a major blow for the sector. Not least threatening business scale going forward and succession planning. The removal of these reliefs could result in farm and estate businesses being broken up and sold to fund IHT liabilities, rather than passing intact to the next generation. With the current flux and insecurity across UK farming due to factors including Brexit and changes to subsidies, this would have huge repercussions for the sector."

Annual Investment Allowance (AIA)

The farming sector has benefited from a rise in the AIA which allows 100% tax relief on purchases of qualifying plant and machinery up to £1m per year. However, this raised threshold is due to end on 31 December 2020 and revert to the former level of £200,000 per year, unless there is an announcement to the contrary in the budget. Martyn Dobinson says:
"Those looking to invest in new qualifying plant and machinery may wish to consider the timing of this investment, if they are to take full advantage of the current raised AIA."

Structures and Buildings Allowance (SBA)

On the plus side, the Structures and Buildings Allowance, which was introduced in 2018 and which currently provides a flat 2% per annum allowance on qualifying expenditure, may be increased in the budget to 3%. Qualifying expenditure includes that on new and renovated non-residential structures and buildings, including fencing, bridges, tunnels and retail space, and the cost is effectively written off over 50 years for tax purposes at the moment. Martyn Dobinson says:
"An increase in the SBA, if it happens, could be scant consolation for the sector, with other widely anticipated changes pointing towards further difficult times ahead for farm businesses – but we will only know for sure when the Chancellor gets to his feet in a few days’ time.

With a 5 year term in office ahead and a strong majority, if the government is going to make radical changes, that is perhaps likely to be sooner rather than later. And with Mr Sunak new to office, he could be looking to make a splash.

We hope that any decisions with significant ramifications for the rural sector are made with the already huge uncertainty from Brexit and changes to rural funding borne in mind."

Saffery Champness

Related Links
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link Year of Change for Young Farmers
link NFU President Opens Hartpury Agri-Tech Centre
link How Farmers Can Claim Inheritance Tax Relief