Reassess financial arrangements to make the most of the new climate, says accountant
Farming businesses should reassess their financial arrangements to make the most of changing credit markets, higher commodity prices and new tax rules, according to accountant Old Mill Rural Services.
"Now could be an excellent time for farmers to examine the level and structure of their business borrowings," says Rural Services Manager Andrew Vickery. "The ongoing turbulent times in the credit markets, and an increasing number of commentators predicting more economic black clouds on the horizon, are contrasted by rising land and commodity prices and potentially beneficial changes to the Capital Gains Tax (GCT) regime."
Businesses with finance scattered across a number of different providers could save money by consolidating their borrowing into one loan or mortgage, he explains. "Despite the credit crunch agricultural banks are still very much open for business and there are still some good deals out there."
Improved profits in some agricultural sectors could either be used to reduce debt or reinvest in the business, and farmers releasing larger capital sums could make wise use of changes in the tax regime, he adds.
"Anyone with non-business assets like buy-to-let properties or quoted shares could benefit from recent changes to CGT, which have reduced tax on non-business capital gains from up to 40% to a maximum of 18%."
For example, a rental property purchased five years ago which now stands a capital gain of £150,000, owned jointly by a husband and wife paying the higher tax rate, could be disposed of with a tax liability of £27,000 compared to up to £54,000 under the old regime. "Now could now be the ideal time to release funds from such investments to repay business borrowing or fund new projects," says Mr Vickery.
New investments, such as expanding a dairy enterprise or building a new grain store, should always be carefully considered from both a financial and a tax perspective. "The phasing out of Agricultural Buildings Allowances will play an important part in your calculations, but there are other new tax reliefs, including changes to Capital Allowances, which could be particularly beneficial," he adds.
"Whatever your situation, it is worth speaking to your bank manager and scouring the market to get the right finance package to suit your business. If you are considering making new investment decisions or disposals take professional advice – this could be the right time to make changes for the better."
