Expenditure on farm buildings, fences, roadways, yards, drainage and land reclamation qualifies for capital allowances at a rate of 15pc per annum for six years, with a 10pc allowance available in year seven. Rules cater for the transfer of remaining capital allowances on farm buildings which are transferred (e.g. on succession).
The amount of expenditure qualifying for allowances is based on the net outlay after receipt of grants or other payments. Where a farmer ceases to trade, either as a result of retirement or for example as a result of company incorporation, unused capital allowances can effectively be lost.
In the case of expenditure on farm machinery, including vehicles used for farming purposes, capital allowances are available at a rate of 12.5pc per annum over an eight-year period. Capital allowances on cars are restricted to the extent that the car is used for farming purposes, but importantly the amount of allowances available are now linked to the level of CO2 emissions from the cars concerned.
Farm losses Where a farm operation incurs losses, an individual may choose to offset those losses against their other income in the year of assessment. For example, a PAYE worker with farm losses may benefit from a refund of PAYE tax deducted where he/she choosesto offset such losses against their PAYE income.
Where a farm makes losses for a number of years in succession then losses are available for offset against other income for the first three years only.
Special rules extend this period in the case where a farmer commences his/ her trade. No loss relief is available for hobby farming. Farmers not availing of income averaging who incur farming losses are not entitled to opt into income averaging.