The annual investment allowance (AIA) which allows businesses to claim 100 per cent tax relief on qualifying capital expenditure is being increased from its permanent rate of £200,000 to £1m from 1 January 2019 for a period of two years. This could be a valuable relief for farmers and contractors where they are embarking on capital projects such as investment in expensive machinery or renewables projects.
The Chancellor also announced that the Government would introduce a new structures and buildings allowance for non-residential structures, which will entitle business owners to relief at a flat rate of 2 per cent for any new infrastructure.
The costs associated with the construction of structures and buildings, or the improvement or conversion of existing structures and buildings are already depreciated in the accounts of many businesses. However, no tax relief has been available in relation to such expenditure since the abolition of the previous industrial and agricultural buildings allowances. This could prove interesting to the rural community.
To fund this additional allowance, writing down allowances available on items allocated to the special rate pool (for example property fixtures and fittings) will be reduced from 8 per cent to 6 per cent. It is even more important to obtain specialist advice in order to allocate items to the right category and therefore to maximise your relief.
National minimum wage
The Chancellor has announced that from April 2019 the National Living Wage for over 25’s will rise to £8.21/hour, a bigger rise than many were expecting. The national minimum wage has also increased to £7.70 for 21-24 year olds; £6.15 for 18-20 year olds; £4.35 for 16-17 year olds; and £3.90 for apprentices. This could be a tough cost to absorb for some rural businesses who are already suffering with the impact of Brexit in finding workers.
The employer apprenticeship contributions have been reduced from 10 to 5 per cent for small businesses, which could help absorb the increase in national minimum wage. It is really important that rural businesses claim what they are entitled to.
Entrepreneurs' relief (ER) allows individuals selling qualifying business assets to benefit from a 10 per cent tax rate of capital gains tax if certain qualifying conditions are met. From 6 April 2019, individuals will need to meet the qualifying conditions for ER for a minimum of two years (increased from 12 months currently). An early review to plan for this relief is essential as the detailed qualifying conditions can often be overlooked resulting in the loss of this relief.
There have also been changes to the qualifying conditions with effect from 29 October 2018 to introduce two new tests in order to meet the ‘personal company’ criteria for share disposals.
The reduction in business rates for on-farm business properties could result in a cut of one third on their current rates for the next two years.
Principle private residence relief
Principle private residence relief (PPR) exempts any capital gain arising on the sale of an individual’s main residence from capital gains tax. The Budget has introduced two changes restricting the relief.
Currently, the final 18 months of ownership will always qualify for PPR regardless of what the property was used for during this period. From April 2020 this will be reduced to nine months. As such, owners may want to reconsider the timing of when they move out of a property that has previously been their main residence before sale. This change does not apply to the elderly who have left their home to enter a care home.
The second change is that with effect from 6 April 2020 lettings relief will only be available to those where the homeowner is in shared occupancy with the tenant.
As usual any changes to your property arrangements needs careful planning in order to maximise your reliefs.