RECENT announcements in the tax regimes affecting dairy farmers and others in the agriculture sector gave them plenty to talk over as they gathered at this year’s Royal Welsh Show.

New Annual Investment Allowances unveiled in the Budget, changes in tax arrangements on dividends and changes to Inheritance Tax rules mean that farmers needed to do some serious planning sooner rather than later, according to a tax specialist.

And Sarah Curzon, head of the agricultural team at Broomfield & Alexander, the Swansea-based independent accountancy firm, also suggests there may be a possible silver lining for some to the recent end of the milk quota – in the unlikely form of a tax break.

“The Chancellor announced in the Budget that the Annual Investment Allowance would fall from the current figure of £500,000pa. to a new permanent limit of £200,000pa. This means that where major capital expenditure is planned, farmers should ideally accelerate it to before 31st December and take advice on the transitional rules, since timing is important,” she said.

A major reform of the way that tax is paid on company dividends was also announced by the Chancellor - previously these had not given rise to a tax charge for basic rate taxpayers.

“From April 2016, there will be a £5,000 individual exemption and dividends will then be charged at 7.5%, 32.5% or 38.1% depending on the income of the recipient,” said Sarah. “Farmers need to review profit extraction policies for family companies and consider splitting shareholdings to maximise the value of the individual exemption.

“On inheritance tax, an additional allowance of £100,000 will be introduced from April 2017, as expected, where a residence is passed on death (but only where it passes to a direct descendant). The relief will rise to £175,000 by 2020/21 and thereafter will be index linked.

“It will taper away where the net estate is over £2,000,000, but helpfully it will still be available when an individual downsizes their home and assets of the equivalent value are passed on to descendants. Farmers need to review wills and inheritance tax plans to ensure the relief is not wasted, for example, by leaving the house to an indirect descendant.”

Regarding the milk quota issue, Sarah suggests that its abolition earlier this year may lead to an opportunity for a small number of producers.

“Since the milk quota no longer exists, any costs incurred in buying quota in the past can now be claimed as a capital gains tax loss, which could potentially reduce or eliminate gains on other capital assets such as sales of land or shares,” she said. “For struggling dairy farmers at least who are being forced to sell capital assets to stay afloat, the relief may at least mitigate the financial damage.

“There may also be some who have inherited quota at a time when it did have a value: because it will probably not have been chargeable to inheritance tax, it is quite possible that this value has subsequently been overlooked. There is now an opportunity to rectify this, and to at least establish a capital loss which may one day be of use,” she added.