Farmers who diversify to boost profitability will be hard hit financially
if controversial proposals for a new 'land tax' are included in the
chancellor's pre-budget report later this month.
The Planning Gain Supplement or 'land tax' would be levied on the
increase in the value of development land after planning permission
has been granted, warns UK top 20 accountancy firm Saffery
The controversial proposal was first suggested by Kate Barker, a
member of the Bank of England's monetary policy committee, in 2003
and has since gained support from the government, with many commentators
predicting its inclusion in the pre-Budget report.
"It is increasingly common for farmers to stop farming as the
amount received under the Single Farm Payment scheme is now unrelated
to production," says Mike Harrison, a partner at the North West
office of Saffery Champness.
Their buildings, which were previously used in the farming operations,
are now redundant and are likely to be converted into offices and
residential units. However, development of this type would be subject
to the new land tax creating an additional tax charge and therefore
further cash flow pressure on farmers.
Mike Harrison continues: "A land tax will be another nail in
the coffin for some farmers. Poor profitability and the delay in
single farm payments until next spring has put many farmers under
severe cash flow pressure this year, but diversification has offered
an alternative income stream. A land tax would impose an additional
financial burden on diversification plans, even when the farmer has
no plans to sell the land."
Mike Harrison added: "With a potential land tax on the horizon,
it would be advisable for any farmers with planning applications
currently in progress to try and push ahead with urgency. Those looking
to diversify in the future should review their land holdings and
work a potential tax charge into their cash flow as a cost of investment."
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