Make the Most of Lost Farm Benefits: A Guide on Saving Tax

Farmers, if you’ve ever felt the pinch of the English Basic Payment Scheme (BPS) changes, there might be a silver lining on the horizon. Farmers Weekly has a guide to take you through how to potentially reduce your tax bill and help you get to grips with the ins and outs of capital gains tax (CGT).

A Quick Catch-Up: What’s Happened with BPS?

Recent estimates suggest that nearly half of those involved with the English BPS have either bought, inherited, or been gifted entitlements. But with changes and devaluations, the original worth of these entitlements might have vanished.

But here’s the good news: this lost value can help in bringing down the CGT you owe when selling land or other possessions. This can be of huge help to individual farmers, business partnerships, and even larger companies.

Understanding the Basics

What Exactly Can I Use This Loss For?

This kind of loss is termed a ‘negligible value claim’ in tax lingo. You can claim it in your yearly tax declaration. The options then are:

  1. To use it against any capital gains you’ve made in that specific year on other possessions.
  2. Or, you can keep it in your tax account, saving it to offset future capital gains.

How Do We Work Out This Loss?

It’s the combined total of:

  • The cost of any entitlements you bought
  • The worth of any entitlements you inherited or were given as a gift

Is There a Time Frame to Make This Claim?

Nope, no strict deadline. But if you wish to use the loss for a particular tax year, then it’s best to claim within two years of that year finishing. It’s wise to make your claim sooner rather than later. Waiting too long might mean missing out or simply forgetting about it.

How Much Could I Potentially Save?

The taxman will want 28% of capital gains from selling houses, and 20% from land or other property sales.

To paint a clearer picture: Let’s say you have a loss of £50,000 and gain £100,000 from selling your farmhouse. This could lead to a tax cut of a handsome £14,000. The exact savings, though, will depend on CGT rates when you make the claim.

Pitfalls to Watch Out For

Land Bought with Entitlements a While Ago

For those who bought land with entitlements some years back and didn’t separate the values, it’s not too late. You can look back, break down the purchase, and include the BPS entitlements cost in your loss figures.

Inheriting Land and Shares from Family

If you’ve inherited land or partnership shares after a family member passed away but didn’t evaluate the entitlements at that time, you’re not alone. Many skip this step due to the 100% inheritance tax relief on business assets. If no official evaluation was done, you can still break down the values between land and entitlements.

How Do Families Split the Losses?

This one can be tricky. The division should ideally be based on the family business agreement. If there’s no such agreement, or it doesn’t mention splitting capital losses, then it’s best to split them the same way as everyday business profits. Getting this right can be complicated; professional advice might be needed.

Final Thoughts from the Expert

Andrew Robinson, a top accountant specialising in agriculture, stresses the importance of making use of these potential savings. By not claiming, you could miss out on future unexpected gains, especially when considering the pressures many farming businesses are currently facing.

Key Takeaway

If you’ve got entitlements, either bought, inherited, or gifted, ensure you don’t let this chance to save on taxes slip through your fingers. Even if you don’t foresee any significant gains soon, it’s still worth making a claim on your 2023-24 tax return. Stay ahead, and make sure you’re not missing out on any potential financial boosts.