[Robb]

Hi a newbiwe question sorry if reproduced but similar elsewhwere.

I am about process to purchase a smallholding in england (specific location may be relevant to question)

I am retiring eraly thru ill health and want this activity as something to do out of house and stay alive not as an income generator.

I have a small pension but still in taxable range.

My Q - are any expenses of starting and running a smallholding that can be offset against the tax i pay?
So, while i currently have a car if i bought 4x4 for transporting livestock or feed or whatever, or if i bought a compact tractor say can I offset this against tax? Similarly recurrent expenses like updating fencing or purchasing/caring for livestock?

Any advcie very welcome tahnk you.

Robb

[Buttermilk]

Todays Farmers Guardian has a page about Hobby farming and near the end it does say capital expenses can be offset against tax. 

[arobwk]

Hi [member=197505]Robb[/member]  and welcome to the forum. 

I haven't seen the Farmers Guardian article Buttermilk refers to, BUT you need to be trading (with a view to making a profit idc) in order to be able to claim expenses and capital costs against all income (inc your pension) for tax purposes. 
Also, one needs to keep trading accounts on the traditional accounting basis - accruals accounting - to be able to offset trading costs against other income.  If one chooses the simpler cash accounting system, one cannot combine trading income (or losses) with other (pension) income for tax purposes.

In summary, you need to find a way to make money our of your small-holding and then actually make a profit in due course.  Can't remember what HMRC consider to be the cut off point, but if you've not managed to make any sort of profit after 4-5 years I reckon HMRC will be looking to categorise you as a hobby farmer and therefore not able to claim any small-holding expenses/capital against all income for tax assessment purposes.

[Always good to know where members are (so ?), but I really really doubt the above advice will be altered by your location within the UK !]

[Robb]

Hi thanks v much for the info
I agree v much about the location thing but at the moment I am not actually anywhere and looking broadly so will be intending to introduce myself to the forum (hopefully) at length at that stage. For the time being i have been mainly reading as it is a good source of info about most things - and i am quite ignorant about most thinsg so it is a good match for me.

Given what u were saying about making a profit after a while i had seem some things talking about 5 years for the hmrc. However i was not sure whether failure after that time period mearly meant claiming against tax had to stop or whether claims lready made needed to be paid back? Quite  a difference in consequence really.

Given my state of health i doubt my capability to run thinsg as substantial business, beyond selling a few eggs or using a paddock for hay which i am guestimating as being comparatively minor incomes. Still if hmrc are intersted in intent rather than success then that may suffice.

I have an additional onstraint in that not only is my health not great because my pension is a disability pension (though i am not physically disabled i think it just a label for the pension) i think there are (quite reasonably) constraints on what work i can do but i think just a hobby is likely to be my limits. I was simply interested inoffsetting some of the start up costs had it been possible.

Tahnsk in any case

Robb

[arobwk]

Robb, it would be great if there is an accounting loop-hole for declaring tax-deductable capital costs for a hobby farm that will never make a profit.  Perhaps someone will come along here who can offer positive advice in this respect, BUT I doubt there is a positive answer ! 

You can, of course, ask HMRC directly or consult with an accountant.

[pgkevet]

You'ld have to be a business to be able to offset tax and that wasn't something I wanted to do so my hobby farm just costs me money but gives pleasure. HOWEVER if you have a decent amount of land there may be ways of renting it out or making sharecropping arrangements with a real farmer to be able to get some income with minimal effort or accounting. This may also matter if you have heirs assuming there are still ways of reducing the inheritance costs of agricultural land (if your getting into that bracket) as well as the other methods of estate planning.

[Robb]

Thank u for thsi advice..

I have seen u and other people say much the same about spending money to keep the hobby farm going but I'd like to find an estimate or guide as to what that sort of finacial commitment amounts to? I am very wary of getting into finnacial difficulties at a stage of my life when i will have no further opportunity to earn again - leaving aside some hay or chicken money.
I am anticiapting buying outright a home with 5acres or less which will leave me with small safety net in bank, may be £100k and monthly income of jus oevr £1k. If i were just retirng into doing nothing i'd expect to be fine but I suspect id go mad with boredom given still relatively young.
However will i be struggling to run the hobby farm lifestyle on these figures?.
I dont want (or expect) live in luxury but dont want to be worried every month about meeting the bills or not afording heating in winter because of vet bills or similar.
I dont mind if i use up all my my safety net up across next 10 years (at that stage i could sell up and retire compleely if necessary) but spening it all in fist one or two years would be scary.
Thank you
Robb

[arobwk]

Todays Farmers Guardian has a page about Hobby farming and near the end it does say capital expenses can be offset against tax. 

I've now viewed that FG article:  rather short on detail, but heh !  I remain confused about the £1,000 Trading Allowance (which is on gross income).  When is it advantageous to apply or to not apply (??):  maybe I'm being a bit thick, but the FG article has not helped my own understanding.

[Wanting to view the Farmers Guardian article a 2nd time (to re-read) I cheated the FG into allowing me a 2nd free viewing of the article without registering;  however, I note that the FG seemingly allows 2 free articles every 7 days just by "registering" (which will probably suit most folk and I will probably register in a bit.  Edit - I'm now registered.).  For unlimited access, one obviously needs to subscibe to the FG.]

[SallyintNorth]

My Q - are any expenses of starting and running a smallholding that can be offset against the tax i pay?
So, while i currently have a car if i bought 4x4 for transporting livestock or feed or whatever, or if i bought a compact tractor say can I offset this against tax? Similarly recurrent expenses like updating fencing or purchasing/caring for livestock?

You’ve had better specific advice than I can give, but a couple of general points :

- when allowing for tax, the expenditure must be “wholly, solely and necessarily” for the business purpose.  So a road vehicle generally no, unless you have a runabout too and can demonstrate that you use the 4x4 only for smallholding-related things.  A tractor yes, assuming you won’t use it to run to the shops! 

- capital allowances are for capital expenditure, so wouldn’t cover renewing fences or buying livestock.  But if you are operating the smallholding as a business, and paying tax on any profits, then yes revenue expenditure such as fencing and livestock would be allowed - as would feed.

- capital allowances are basically against depreciation, so unless there is a suitable scheme you can get onto, the offsetting happens over a period of years, usually not less than four and can be up to ten.

To answer your later post about keeping a hobby smallholding going for enjoyment, a common approach is to write off the set-up costs as being an investment in future health, happiness and homegrown food, then aim to balance the books on each aspect - so sell eggs to cover the cost of the hens, sell pork to cover the cost of pigs, sell lamb, fleeces and sheepskins to cover the cost of the sheep.  I suspect that many of us are happy enough if overall we don’t end up spending more on our own food than we would if we bought similar quality at farmers’ markets .  And the work is our “green gym” subscription 

It’s blimming’ hard work to make actual money, so in your situation i would definitely be looking at that sort of model.

If you keep it simple, breed only hens and buy weaners each spring for your pigs, buy store lambs or if you are up to the work, get caddy lambs, and aim to have all or nearly the lambs away by November each year, you should normally just about stay within my equation.  You’ll need little hay as most of the sheep will be away before winter, the ground will recover each winter for the next year’s livestock - and you’d be unlucky to need to call the vet very often.  You’ll only need housing for the hens, summer arks for the pigs, a stable or small field shelter for the few lambs which overwinter with you. 

([member=2128]Womble[/member], are you reading this? )

[doganjo]

I am anticiapting buying outright a home with 5acres or less which will leave me with small safety net in bank, may be £100k and monthly income of jus oevr £1k. If i were just retirng into doing nothing i'd expect to be fine but I suspect id go mad with boredom given still relatively young.
However will i be struggling to run the hobby farm lifestyle on these figures?.

If you are hoping to get £1000 a month gross income from £100000 investment, that is a very high percentage.
That's far more than anything you could earn in the bank let alone by trading full time as a smallholder.

[arobwk]

As regards SiN's #9 reply and remark about “wholly, solely and necessarily” for the business purpose:  it's perfectly acceptable to split costs for shared assets (say a car) between personal and biz use.  One just needs to discriminate between (and record) different uses so that running costs and cap' cost can be proportioned between biz and personal use over a tax year.

[SallyintNorth]

As regards SiN's #9 reply and remark about “wholly, solely and necessarily” for the business purpose:  it's perfectly acceptable to split costs for shared assets (say a car) between personal and biz use.  One just needs to discriminate between (and record) different uses so that running costs and cap' cost can be proportioned between biz and personal use over a tax year.

I think you can split running costs, yes, but I think you can’t apportion capital costs?   The rules may well have changed, mind; it’s a very long time since I needed to know all this stuff.

[pgkevet]

If you are hoping to get £1000 a month gross income from £100000 investment, that is a very high percentage.
That's far more than anything you could earn in the bank let alone by trading full time as a smallholder.

The OP is talking about offsetting tax which implies other earnings (pensions, disablitiy allowances etc?) We'ld all like a 10% return on capital with low inflation..
As far as costs of running 5 acres.. wll hard for me to say. I've got 54 acres so invested in tractors, chain saws, mowers, quad bike and the like. After buying those the simple practical things of insurance and fuel and servicing costs are quite high...

[Womble]

([member=2128]Womble[/member], are you reading this? )

Yes, but I'm not sure I'm going to be much help! 

Let's get one thing out of the way first though:

I am anticiapting buying outright a home with 5acres or less which will leave me with small safety net in bank, may be £100k and monthly income of jus oevr £1k.

So the OP wasn't saying he'd get £12K a year back from an investment of 100K, just that he has a £12K a year pension PLUS a nest egg of £100K - am I right Robb?

Anyway, back to the original question:

I am retiring eraly thru ill health and want this activity as something to do out of house and stay alive not as an income generator.I have a small pension but still in taxable range.My Q - are any expenses of starting and running a smallholding that can be offset against the tax i pay?

I think you've hit the nail on the head there with "not as an income generator".

Unfortunately, unless you intend to run your smallholding for profit and have a realistic plan for doing so, no tax relief is available.

If I were in your situation though Robb, I'd buy the smallholding, but would make sure it was going to be easy to maintain if my health got worse (for example, can the land be easily sub-let instead of farming it yourself?). Then by all means buy the place, but then just do whatever you fancy and whatever you'll find fun.

So for example, instead of trying to farm small scale for profit (oh boy is that difficult to achieve), why not set a different goal, like "be as self sufficient as possible"? Then, say you have a flock of hens, they'll give you eggs for you, and you can sell the extras at the garden gate. Since it's a hobby, that also counts as "incidental income" to offset the cost of the feed etc, so you don't need to go declaring three dozen eggs on your tax return.

Does that make any sense?

[Womble]

As regards SiN's #9 reply and remark about “wholly, solely and necessarily” for the business purpose:  it's perfectly acceptable to split costs for shared assets (say a car) between personal and biz use.  One just needs to discriminate between (and record) different uses so that running costs and cap' cost can be proportioned between biz and personal use over a tax year.

I think you can split running costs, yes, but I think you can’t apportion capital costs?   The rules may well have changed, mind; it’s a very long time since I needed to know all this stuff.

Well I hope I haven't broken any rules, but for example we bought a trailer that gets used 50% for farm stuff (i.e. fetching hay bales etc) and 50% for non-farm (e.g. fetching logs). My accountant advised that there were two ways to approach this; either record the whole cost of the trailer as a business expense but then repay a portion to the business as a benefit in kind, OR make a note in the file and then only "charge" 50% of the trailer's cost as a business expense. I went for the latter, just because it was easy. You're now making me doubt my accountant's advice though!?