Date20 Jan 2021
CategoryAdvisory, Tax, Capital Allowances
Normally at this time I would be looking back on what the year has delivered, but last year was certainly been a strange one. There were many reasons for this, some coronavirus related and some not. The weather was far from ordinary with a very dry Spring and wet autumn, prices have been mixed, lockdown affected the demand for crops such as malting barley, while lamb and beef prices remained higher than most predicated, and many diversified businesses and agri-tourism have struggled where trading had been restricted.
Despite this, there were positive outcomes with consumers buying more UK fruit, meat, and vegetables direct from farmers and farm shops. Of course, the global pandemic was the focus of all our lives, but there was some humour and many acts of kindness along the way. One of the funnier moments was a bachelor client asking me what all the fuss about lockdown was. He had been self-isolating for years.
Now is a time to look forward rather than back. There are changes coming down the farming road that will need careful negotiations. Our team at Azets speak to farmers throughout Scotland and what many clients are asking about is the likelihood of future tax hikes and whether to pass on assets now. Nothing like the threat of tax rises to create real stimulus for action and gifting assets! There is no doubt if you have a succession plan in place it would be prudent to get on and complete it now.
My own view is we are likely to see Capital Gain Tax and Income Tax rate rises in the short term. There may be an overhaul of Inheritance Tax although I suspect that might come later down the line. The Chancellor has an economy to get back on track so difficult tax changes will not be a priority. Increasing tax rates is easy to do quickly with little disruption for HM Revenue and Customs.
However, I am not sure tax is the biggest threat to UK agriculture just now. I am surprised at the lack of questions and concerns about both Brexit and changes to the subsidy system. These could have a far greater impact than potential tax rises and challenge the profitability of many farming businesses.
Speaking to my colleagues in England has provided an insight into the subsidy changes recently announced there. The speed of change is dramatic. As an example, a farmer receiving Basic Payment income of between £30,000 and £50,000 will expect to see a 55% reduction by 2024. We will certainly have a different system in Scotland and probably less severe. Regardless of this, be under no illusion that the area payment will reduce quickly, and the direction of travel is towards environmental subsidies and improvement schemes.
Farmers have been accustomed to changes in subsidy regime. Businesses will adapt, some will retire, some expand, and others diversify. Most farm businesses will be constrained by one or more resources. You may be restricted by the land type or size, location, skill base or available finance. Too often people resort to working harder and longer which never is a long-term solution. The key to any good business, regardless of sector or size, is good planning and the ability to change. Take this quieter period to think strategically about your farm and speak to your trusted advisor about a long-term plan which takes account of a reduced subsidy.
If you would like to discuss planning for your farming business contact Andy Ritchie on 01738 441 888 or email firstname.lastname@example.org.