Who Would Be A Farmer?

Let me introduce us. Foot Anstey Hancock Caffin is a South West firm of solicitors with offices in Truro, Plymouth, Exeter and Taunton. Recently the National Farmers Union appointed us as their panel solicitor for Devon and Cornwall.

So what is the present state of agriculture in the South West?

Being a farmer has never been easy but years of gloom have recently given way to cautious optimism. Rising food prices in the shops represents an improved outlook for farmers and growers with substantial increases in the price paid to dairy farmers for their milk and a reasonable grain price. There is even talk of prices for beef and lamb reaching sustainable levels for the first time for many years. But it is not all good news.

One of the most surprising improvements for farmers in the last two years is the staggering increase in the value of land. But the Chancellor attacked this windfall in his recent change to Capital Gains Tax with little publicity on the extent and effect on landowners.

Until 5 April a farmer selling his farm and not reinvesting benefitted from generous tax rules. If he purchased or acquired his farm before April 1982 then for Capital Gains Tax purposes the property was re-valued as at April 1982. Any valuer will tell you that at that time land prices had reached an all time high. With that new (high) base figure the seller of land could add an allowance for the rise in the cost of living between 1982 and 1998. This doubled the base cost. Assuming the seller had farmed the property for at least two years then the effective tax rate on a sale was 10% of the difference between the net sale price and the base price calculated as set out above. So if land was worth £100,000 in 1982 and was sold for £300,000 in March 2008 the tax bill would be in the order of £10,000 – 10% of £100,000.

So what has the Chancellor done? He has hit farmers in two ways:-

• Firstly he abolished the indexation allowance
• Secondly he increased the marginal rate of tax from 10% to 18%.

On the above example this could increase the tax payable from £10,000 to £36,000.

It will be a shock for many farmers to realise that, whilst the land price has risen significantly in the last two years, the tax rate with the abolition of indexation allowance and the almost doubling in the marginal rate of tax means that the tax payable may have more than trebled. Accordingly, any farmer thinking of selling should take early advice on the tax consequences of so doing. 

For further information or advice, contact Simon Gregory

Published 29/05/2008. The author of this article is Simon Gregory