Plan capital disposals now to avoid steep hike in tax, warns Old Mill
Farmers should consider crystallising capital gains now to avoid potentially massive hikes in tax under the new coalition government, according to accountant Old Mill.
With the new government seeking to tackle the massive budget deficit, Capital Gains Tax (CGT) could become one of Chancellor George Osborne’s targets in his first Budget, warns head of rural services Mike Butler. “Current CGT rates are set at between 10% and 18% – well below income tax rates. It is possible that Mr Osborne will increase CGT to as much as 40-50% in his Budget, which is expected by the end of June.”
Farmers should therefore consider crystallising capital gains now – whether in the form of a sale or gift – to lock into the potentially lower tax rate. “If you are planning to sell an asset in the coming years, it could be worth gifting it to a trust to crystallise the capital gain now, to reduce the liability on its ultimate sale,” says Mr Butler.
Equally, those with loss-making assets like milk quota should defer crystallising the loss until the envisaged higher tax rate comes in, to make better use of their loss relief. “For example, a farmer with £150,000 of milk quota losses could claim £15,000 of CGT saving now under the existing 10% Entrepreneurs Relief. But if they delayed that sale until after the Budget, the same quota could yield a £60,000-£75,000 saving under a possible 40-50% tax rate.
“If CGT rates are set to rise in the short term it is essential to plan ahead and act quickly to secure the optimum timing of asset disposals. Taking professional advice and acting now could save you a vast sum in the future.”
For more information contact Mike Butler – Tel: 01935 709321, or e-mail: mike.butler@oldmillgroup.co.uk.