Sunday, October 14, 2007

Capital gains tax hit on farmers is not good news

Why should anyone who wants to see a more modern agriculture in Britain be concerned about the fact that the measures announced by the Chancellor in the pre-Budget report impose a greater tax burden on farmers?

Because it may discourage farmers from selling up. That is an important mechanism for restructuring farms to permit greater efficiency. It also allows new capital and younger managers with new ideas to come into the industry. Even if average age statistics can be misleading, there are still many farmers who started farming when maximising production with the help of subsidies was the favoured policy.

Farmers have been hit particularly hard by the Chancellor's scrapping of indexation allowances. This reduces taxable gains on assets held long term. It has had the effect of making tax free the first 105 per cent of gains on farmland held since at least 1982, leaving only gains above that amount subject to capital gains tax.

Farm prices have been buoyed by a number of factors. The availability of substantial subsidies has been one factor, but farms within easy reach of London have often been purchased for lifestyle and/or sporting reasons. The recent hike in crop prices also makes arable farms a more attractive investment.

Some farmers who have been thinking of selling up may now try and do so before April, but that may entail some discounting as purchasers will be well aware of the tax penalties attached to a delayed sale.

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