Maximising tax reliefs on agricultural property expenditure

When considering the tax relief available on agricultural property expenditure, the first question should be “was the work done a repair or renewal of existing assets or was it improvement works?”

Repairs and renewals attract a 100% immediate deduction and include painting, stone cleaning, damp treatments, roof replacements, replacing windows, replacing wooden beams with steel girders etc.

New farm buildings used to have a 4% annual write off but with the phasing out of Agricultural Buildings Allowances it is all the more important to look at the make-up of the cost of any new building.

Significant elements of the new build could qualify for Capital Allowances under the classification of plant or integral features. The key is to retain all documentation on the build so that the qualifying costs can be identified. 

Expenditure that qualifies as ‘Plant’ will be eligible to be written off against tax at either 100% or 20% and 18% from April 2012.

Some agricultural buildings qualify in their entirety as ‘Plant’.  These include Pig Arcs, Slurry Pits, Silage Clamps, Fish Tanks, some chicken sheds and cold stores.  In fact many buildings with climate control systems such as glass houses or potato stores can qualify.

These particular buildings can attain higher levels of allowances due to various factors which allow the building to be classified as part of the process being undertaken rather than just a setting in which activity takes place and it is this difference which changes the level of tax relief available.

Expenditure which can be classed as “integral features” will attract capital allowances at 10% or 8% from April 2012.

Integral features could include: electrical and lighting systems: cold water, hot water and heating systems, including pipes, pumps, boilers, valves; air conditioning systems including ventilation shafts, automatically controlled natural ventilation shutters, metal mesh and curtain arrangements for controlling air flow or a lift, escalator or moving walkway and thermal insulation.

These items can also qualify for 100% allowances as they can be allocated against the annual investment allowance.

Capital Allowances form an important part of the funding package when spending money on property or equipment but it is common place that claims have not been maximised.  

In particular where a building has been purchased as part of a farm, there is the potential to claim allowances and this can be done without having to ask previous owners for invoices or details of the original cost of the building.

By working with surveyors a valuation can be prepared of the replacement cost of all qualifying expenditure within a building at the purchase date following a single visit.

An apportionment formula can then be applied based on the total replacement value of the building to come to a figure which is acceptable to HM Revenue & Customs.

The current legislation does not prevent you claiming any Capital Allowances even if previous claims have been made on some parts of the building.

As integral features only came into existence in April 2008 most previous owners will not have made a claim in full.  

Claims can be made in any year which is still open under self-assessment to give an immediate tax saving. 

The costs involved in a renovation or building project can be significant but knowing that a substantial claim for capital allowances is available, can make it both affordable and attractive.  With the reduction in the capital allowances rates announced in the recent Budgets, it is even more important to maximise all claims for capital allowances. 

If you are planning to undertake building works in the future or you think you may have missed out on making a capital allowances claim, please speak with myself or a member of the Johnston Carmichael agriculture team. 

Robin Dandie, Head of Agriculture, Johnston Carmichael, Forfar.