Revenue Note for Guidance

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Revenue Note for Guidance

658 Farming: allowances for capital expenditure on construction of buildings and other works

Summary

Persons chargeable to tax on their farming profits may claim a farm buildings allowance for capital expenditure on the construction of farm buildings (other than buildings used as a dwelling) and certain other works. The cost is written off at the rate of 15 per cent of the cost in each of the first 6 years with the remaining 10 per cent in year 7.

Details

Application

(1) Farm buildings allowances are available to persons whose farming profits are taxable by virtue of section 655.

Allowances

(2)(a) A farm buildings allowance is made, over a 7 year period, to a farmer who incurs capital expenditure on the construction of farm buildings (excluding a building used as a dwelling), fences, roadways, holding yards, drains, land reclamation and other works such as walls, water and electrical installation and sewerage.

(2)(b) The rate of the farm buildings allowance is 15 per cent of the capital expenditure for each of the first 6 years of the 7 year period with the balance, 10 per cent, allowed in year 7.

(2)(c) Certain transitional rules apply for dealing with expenditure incurred before 27 January, 1994 (see paragraph 23 of Schedule 32).

(3) For the purposes of the allowances under this section, the “basis period” for income tax purposes is the period on the profits or gains of which the income tax liability is calculated.

Deemed allowances

(4) An allowance under this section is deemed to have been made for any year of assessment for which an individual is not chargeable to tax on farming profits and in which, if the person had been chargeable, the person could have claimed a farm buildings allowance.

Pre-trading expenditure

(5) Capital expenditure on farm buildings which was incurred by a person about to start farming but before farming begins is regarded as being incurred when the farming actually begins.

Claims

(6) Farm buildings allowance is claimed by being included in the person’s annual tax return. The balance of the allowance not granted in any year of assessment (because there were insufficient profits to absorb it) may be carried forward to later years.

Transfers of farms

(9) If a person who is entitled to a farm buildings allowance transfers the farm to another person, the transferee becomes entitled to whatever allowance is due for chargeable periods after the transfer.

(10) If only part of the farm is transferred, the transferee may claim so much of the allowance as relates to that part of the land.

Apportionment of expenditure, prevention of double relief and exclusion of grants

(11) Capital expenditure that relates only partly to farming purposes is to be apportioned. Farm buildings allowances only apply to the part that relates to the farming trade.

(12) A farm buildings allowance is not granted if the expenditure qualifies for an industrial building initial or writing-down allowance under Chapter 1 of Part 9.

(13) Only net expenditure qualifies for farm buildings allowances – any State or other subsidy is excluded.

Relevant Date: Finance Act 2020