Pre-Budget Statement reveals further knock-backs for rural businesses
Alistair Darling’s first Pre-Budget Statement, announced yesterday (9th October), will have a profound impact on rural business, according to accountant Old Mill Rural Services.
For many, the highlight of the Statement was Mr Darling’s guarantee of the full use of the Inheritance Tax nil rate bands for both spouses, meaning a couple’s taxable assets of up to £600,000 will escape tax.
“However, this will actually have very little impact on the well-advised, as they would already have been achieving this through carefully drafted wills,” says Mike Butler, Partner with the specialist Rural Team.
More important to rural businesses are the planned changes to Capital Gains Tax (CGT) rules. These spell the end of Indexation, which gave an allowance for inflation between 1982 and 1998, and meant that if an asset had only increased in line with inflation then no CGT was payable. The benefit of this will be removed from April 2008.
Taper Relief is also to be abolished. Since 1998 Taper Relief has given a maximum tax rate of 10% upon the disposal of business assets, and even less in many cases. “Contrast this with the rate of tax suffered on the disposal of non-business assets of at least 24%,” says Mr Butler.
“With the planned introduction of a flat rate of CGT of 18% on the disposal of both business and non-business assets, it is clear who will be the winners and losers. Unfortunately those running businesses will be worst affected by the changes, which are due to be introduced next April,” he adds.
“Anyone seeking to gift or sell business assets should consider doing so before April 2008, to make the most of Indexation and Taper Relief benefits, and to avoid the increased CGT levy. This will particularly apply to disposals of old barns and farm land, especially if they have development potential.”
However, those looking to sell or gift non-business assets, including let properties and investments, should probably wait until after 6 April 2008 for maximum benefit.
Gordon Brown had already introduced other unpleasant surprises in his 2007 Budget, in the form of increases in the small companies’ Corporation Tax rate, from 19% to 22% by 2009, says Mr Butler.
“In the past, transferring a business to a limited company has proven extremely tax efficient, with lower tax rates on profits, and business asset Taper Relief from CGT on shares when winding up the business. The combination of modest rises in the small companies’ Corporation Tax rate and now the rise in CGT rates means that the decision to incorporate for fiscal savings is far less clear.”
Catherine Vickery, Old Mill’s Agricultural Tax Specialist, is working with the firm’s tax planning team to consider ways to utilise Indexation and Taper Relief before they disappear, adds Mr Butler. “But it is vital that anyone with assets sat at a gain considers their position, to make the most of this window of opportunity.”
Ends.
Notes to editors
For more information contact
Alan Stone – Marketing Manager
Tel: 01749 335007
E-mail: alan.stone@oldmillgroup.co.uk
About Old Mill Rural Services
Old Mill accountants and financial advisers employ 140 staff in three West Country offices. The rural services teams are headed by Partners Mike Butler (Yeovil) and Ian Sharpe (Shepton Mallet). Looking after nearly 1,000 farmers they are one of the leading specialist farm accountants, and are happy to help with any financial and tax-related enquiries from the media.