John Billings, Senior Partner at Carpenter Box explains the importance of capital tax planning for vineyard and winery owners as part of overall business development planning.
Does your business have effective planning in place?
It’s a given that most owners in the vineyard and winery industry work incredibly hard ‘in’ your businesses, but how much time do you set aside to work ‘on’ your business? Simply put, we would categorise ‘in’ as the day to day of running an effective operation, as opposed to ‘on’, where we would stress the importance of taking a step away from the operational side focusing on the business strategy and development.
In summary, is there an effective business plan in place? Is this plan adjusted to account for changing market conditions?
Specifically, tax planning
Is tax planning part of this overarching business plan? Does it include the broad range of legislation that has come in and will come into force in the future? If not, we would suggest tax planning along with many other ways to plan ahead for the optimised growth of the business as something to be considered sooner, rather than later.
If selling is something being considered, then we suggest that preparation and planning several years in advance is highly recommended. This will help to maximise the potential value of the business. A key reason behind this is that in the event of a sale of a vineyard and winery business, the most common and optimal position is to pay capital gains tax at the rate of only 10%.
This can apply where the sale qualifies for Business Asset Disposal Relief (formerly known as Entrepreneurs Relief). This relief can apply to the first £1m of qualifying gains if you have not previously made use of the relief. The tax rate for gains above this limit is 20%.
Where should these rates apply?
These rates should apply if all of the business assets are being sold, in a self-employment trade, partnership, or LLP. They should also apply if all of the shares in a trading company in which someone is working are being sold. For minority interest investors in companies that have been successfully structured as EIS companies there may be no tax on the sale of your shares.
There are occasions where Business Asset Disposal Relief may not be available, so always take advice from your professional adviser. There is an increasing amount of activity and consolidation in the marketplace, and there may be some tempting offers made for businesses in the coming years, so early preparation is sensible.
Passing on the business on death
Alternatively, ownership of a vineyard and winery business may wish to be retained for a lifetime, passing it on to the next generation of family. The advantage here is that there should be significant savings in the Inheritance Tax (‘IHT’) the owner would otherwise have to pay on death.
If the business was valued at say £1m on death and qualified for Business Relief, the owner would get 100% relief and pay no IHT. In contrast, if the business was sold before death and the deceased had £1m in cash, IHT at 40% would be payable. This assumes the basic IHT reliefs available (e.g., basic nil rate band £325k and residential nil rate band of £175k per person) have been used elsewhere.
A restructure needs careful consideration
There are some huge savings to be made with the right structure in place. Care is needed to ensure that the wrong structure does not accidentally exist preventing the very beneficial relief at 100% from applying. As an example, owning a vineyard related asset personally, which the company uses, may result in only 50% relief being available on the personal asset element.
We would strongly recommend that professional advice is sought as early as possible to ensure you get the best outcome for your particular circumstances.