Fears about recession and a range of proposed tax measures to be introduced from October 2012, and into 2013, including the removal of the zero-rating of VAT on alterations to listed buildings and a cap on tax relief for trading losses, are contributing to uncertainty for rural business, farmers and landowners.
"A significant number of rural businesses now feel under threat through the loss of a range of capital allowances and reliefs. Importantly, agriculture, heritage and tourism, and even some craft based enterprises feel exposed to the loss of reliefs and increased taxation" Mike Harrison, a partner of Saffery Champness, said.
"There are a wide range of new rural businesses, including farms and estates, which currently benefit from the ability of individuals to offset trading losses, qualifying for loan interest payments against their owner’s other income. From the 6th April 2013, total tax reliefs on income will be capped at either 25 % of annual income or £50,000, whichever is the greater. This is a clear disincentive to investment in new enterprises.
"Additionally, tax relief on capital expenditure now has reduced with the initial capital spend on which 100% relief is available in the first year reducing from £100,000 per annum to ’25,000. Also the rate of relief on expenditure in excess of this level has reduced from 20% per annum to 18%.
"It is therefore unsurprising that the first quarterly Rural Economy Index, recently published by the Country Land & Business Association (CLA) and Smith Gore, indicates that a third of businesses surveyed are not intending to maintain investment at current levels - thus restricting future business and economic growth.
Mike Harrison concludes: "Landed estates, farm and rural businesses seeking to diversify will be hesitant given the current tax proposals and uncertainty. In these circumstances good advice on tax and business planning is essential for making decisions, especially for new business diversification".
