The future could be bright - with planning

With inflation within agriculture being more than 20%, who wouldn’t be keen for:

• a secure, strong, long-term income
• diversification away from agriculture
• helping with the UK energy crisis
• a valuable non-farming asset

This is the case for some battery storage opportunities together with solar if you can gain grid connection.

Although there are several benefits to such opportunities, you need to be aware of the impact it can have on your taxes. Assuming the land was owned and used within your farming business then it may have qualified for both agricultural property relief (APR) and business property relief (BPR) for inheritance tax (IHT) purposes. It could therefore be passed on IHT free. The change of use may lose:

• all IHT relief on the land in question
• BPR on the wider business leaving you with only APR covering the agricultural value
• some of the capital gains tax relief including business asset disposal relief - the effective 10% capital gains tax rate when business assets are sold
• holdover relief which could have allowed you to pass on the land and defer the capital gain
• rollover relief whereby you can defer a capital gain by reinvesting in business property and,
• be subject to income tax at 40% to 45%

To put it into context, the loss of IHT, just on the land used, can equate to 12 to 13 years of the income that is generated. However, please don’t despair! It is still a very good opportunity if you plan early. You need to consider:

• who you want the income to go to
• what the income will be used for
• longer term where you would like the asset ownership to be

It is likely that there will be many solutions that we can offer. These may include gifting the land away whilst it is still in agricultural use thereby deferring the capital gain and locking it into your estate at the value at the date of the gift. This value is likely to be considerably lower before planning permission is granted and the development has started. We could also consider the use of a limited company, which may enable you to pay tax under current rates at 19% rather than 40% to 45% together with providing a vehicle to pass wealth on.

There are many possibilities, depending upon your circumstances, so please do get in touch if you have any questions.