Cows & Money: Budget Special

Well we weren’t expecting as much as George seems to have crammed into his Budget. The main announcements having an impact on farmers are noted below.

Dairy Bulletin Header

SDLT

There will be increases in SDLT costs for those buying farms or land over £1,010,000. Below this level, purchasers will make some savings, particularly at just over the £250,000 mark. These changes are effective from midnight tonight but there will be transitional relief for those in the process of purchasing.

Dotted LineCGT

The headline reduction in CGT rates from 28% to 20% and for basic rate taxpayers to 10% will grab the headlines. Buy to let investors will however be disappointed these new rates won’t apply to disposals of residential property. What it does mean is that with a basic rate band of £32,000 from 6 April anyone disposing of assets with no more than £43,100 of gain will only suffer tax of £3,200, presuming they have no other income. Remember you can also offset current year trading losses against Capital Gains so you may be able to make more gains?

This means many farmers selling assets to raise funds to plug a cashflow hole will possibly not have to make changes to their business to ensure they qualify for Entrepreneurs Relief. As ever, anyone thinking of disposing of assets should seek advice before doing so.

Changes to Entrepreneurs Relief mean that shareholders in an unlisted company could benefit from ER even if not an employee or director. This will only apply to new shares purchased after 17th March 2016 and held for three years.

In an about turn the Revenue have also announced changes to rules introduced at the last budget that restricted Entrepreneurs Relief on joint ventures and corporate partners. The changes, which are to be backdated to 18 March 2015, mean those trading companies investing in a joint venture trading business should continue to benefit from ER. This is welcome as it returns some of the structures that Dodd & Co have set up into the ER regime.

Dotted Line2Corporation Tax

A further cut in Corporation Tax to 17% in 2020 coupled with lower CGT rates will mean even without ER, businesses will be able to ‘money box’ profits and extract with a total tax charge of 33.6%, significantly lower than personal tax rates of over 40%. This is likely to mean that company structures look even more attractive.

Dotted LineIncome Tax

Not many changes other than the abolition of Class 2 National Insurance, so a slight reduction in annual tax for the self employed, but not until after April 2018!

Dotted Line2Sugar Tax

The announcement of a sugar tax in two years’ time will hopefully improve the nation’s health and sporting prowess as the money raised will be used to fund sports provision in primary schools and extra curricular activities in secondary schools. It was pleasing to note that milk based drinks will be exempt from the tax which will see drinks with more than 5g sugar per 100ml suffer a tax charge. Presumably this will be passed onto consumers which could well make milk based drinks look more attractive.

Dotted LineISA’s

The increase in ISA limits to £20,000, from April 2017, and a new lifetime ISA package allowing up to £4,000 per year to be saved by those under 40 at 5 April 2017, with a £1000 bonus available are set to encourage more saving. The new lifetime ISA will effectively give basic rate taxpayers the same tax advantage as a pension but without as many restrictions or tax charges to extract the money. Needless to say, speak to a financial advisor!

It seems the bulk of the giveaways that will see changes and a reduction in borrowing are to be funded by changes to loss relief, interest deductions and withholding tax on large companies, raising £9 billion! It doesn’t look like this will have an impact on many farmers though.

If you want to know more about the full impact of the main changes visit our budget page.

Please click here to download a copy of our 2016/17 Tax & PAYE Tables.

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