ERECTING and refurbishing farm buildings will be more financially viable now that farmers can benefit from the new Structures and Buildings Allowance (SBA).
According to accountant Old Mill, the SBA – announced by chancellor Philip Hammond in the autumn Budget – is a big tax change which could make a significant difference to farm investment. It allows landowners to offset two per cent of the building cost against their Income Tax or Corporation Tax each year, for the next 50 years.
Catherine Vickery, rural tax specialist, said: “Alongside the increase in the Annual Investment Allowance, to £1m a year, this is the biggest thing to come out of the Budget. Since the government abolished the Agricultural Buildings Allowance in 2011 there has been no tax relief available on new farm buildings, so this is an exciting change.”
The SBA applies to the erection or refurbishment of commercial buildings from October 29, 2018. It covers commercial offices, storage and livestock buildings – whether for your own use or rental - but not residential dwellings.
Ms Vickery said: “The aim is to get people investing to stimulate business growth. It’s not a huge incentive, but it may be enough to tip the balance when people are assessing their infrastructure. The tax saving, combined with improved building efficiencies, could make it more financially viable to erect a new build or carry out extensive refurbishment.
"For example, a farmer looking at spending £100,000 on a new barn would be able to offset £2,000 a year against Income or Corporation Tax. If paying tax at the highest rate of 47 per cent, that would generate a tax saving of £940. They will most likely be borrowing money to finance the build, so can also offset the interest against tax.
“If you’re paying interest at two per cent, and therefore saving £1,880 a year in tax when combined with the SBA, it effectively means the building is costing you £120 a year, excluding capital repayments.”
There are some restrictions: Where contracts have been signed or work commenced before October 29, 2018, the SBA will not apply.
“There are anti-avoidance measures in place to prevent anyone trying to fabricate eligibility,” warned Ms Vickery. "That said, it may be possible to claim partial eligibility, where one contract has been signed covering the structure, but another is yet to be agreed for the concrete, for example."
She said in future years, the SBA is likely to affect farm prices, as the allowance transfers over to the purchaser. “However, the vendor should be aware that the base value of the building will reduce by the amount of allowance claimed, so the sale could generate a chargeable capital gain.”
The SBA also applies to structures – including walls, bridges and tunnels - so may be useful when refurbishing or erecting stone walls. In addition, it covers the cost of necessary demolition and land alterations, but not the cost of the land or obtaining planning permissions.
Ms Vickery said: "When combined with the £1m Annual Investment Allowance – which gives 100 per cent up-front tax relief on the purchase of eligible plant and machinery – now is an extremely good time for farmers to be improving or replacing their buildings. You could make your business a lot more efficient by having buildings which are really fit for purpose.”
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