Rural landowners in the UK can benefit from changes announced in recent emergency budget

They can also plan capital purchases before investment allowances are reduced in 2012, look at employment incentives for new businesses, look at the potential changes to tax treatment of furnished holiday lets and should be aware the government is consulting on Inheritance Tax on trusts.
 
One of the easiest ways for rural property owners to mitigate against the CGT increase is to use Entrepreneurs’ Relief, which is available on the sale of an eligible business. Any gains from the sale of a qualifying business up to a specified limit attract a CGT rate of just 10%, explained Andrew Shirley, head of rural property research. As the Chancellor raised the ceiling for Entrepreneurs’ Relief from £2 million to £5 million many farm or land sales could effectively be exempt from the new higher rate of CGT, he added.
 
‘Landowners need to make sure they are in a position to make best use of Entrepreneurs Relief if the need to claim it ever arises. The amount of gain on which relief is available can effectively be doubled from £5 million to £10 million if a business run by a husband and wife is structured correctly. If both parties are genuine partners in the business each can claim the relief,’ he said.
 
But he also pointed out that Entrepreneurs’ Relief cannot be claimed on the sale of let land and farms as there needs to have been active involvement in the actual farming. ‘This does not mean the property in question has to be registered as a business, but there must be some evidence of trading being conducted on the owner’s tax returns,’ he added.
 
Any farms or estates not paying tax as a corporation may now want to consider restructuring to take advantage of the lower rates of tax. But with the valuable Annual Investment Allowance being slashed from £100,000 to just £25,000, this could be a big blow to many farms and estates which have to make irregular investments in items with a high capital value like combines and tractors. Tax allowances for agricultural buildings are already set to end next year.
 
As the new reduced allowance will not come into effect until April 2012 so anybody who is considering a large capital purchase over the next few years would be advised to bear this in mind. The write-down allowance for plant and machinery also falls from 20% to 18%.
 
As expected, the Chancellor scrapped Labour’s proposals to remove the tax exemptions for furnished holiday lettings for the 2010/2011 tax year. FHLs provide a good income stream on many rural estates so this move is welcome but the government is to consult on the tax treatment of FHLs from April 2011 onwards including the number of days that each property has to be available to rent to qualify for the reliefs.
 
Anybody who could be potentially affected by future changes should stay in close contact with their property adviser and work with lobbying organisations such as the Country Land & Business Association, which will undoubtedly be pressing the government to continue to treat FHLs favourably, says Knight Frank.