The details that have recently been released about the changes to be made to the CAP, have confirmed that milk quotas will cease from March 2015, as was expected to be the case from previous announcements.
What will the tax effect be for individuals and businesses holding milk quota?
If the milk quota was acquired on introduction, and therefore nothing was actually paid for the quota, this will have no tax implications. Where the milk quota has been acquired in the market, and an amount actually paid for it, a capital loss will arise in March 2015. The amount of the loss will generally be the amount that was paid for the quota, as the quota will be regarded as having a nil value.
How can this loss be utilised?
If the milk quota is held by a limited company, the capital loss will only be available to set against capital gains of the company. Where the quota is owned by a partnership, or a sole trader, the loss will be available to set against capital gains of the business, and also against capital gains made by individual partners or a sole trader on non-business assets.
As a capital loss brought forward is only set against capital gains after the annual exemption (currently £10,900) has been utilised, if capital gains are to be crystallised by individuals to utilise the capital loss, it may be tax efficient to crystallise the gains after 5 April 2015, as the loss will arise in the tax year ended 5 April 2015.
As any milk quota held is already likely to be regarded as worthless, it should be possible to make what is known as a negligible value claim in order to accelerate the use of the loss. If such a claim was made “today”, it would establish the loss on the milk quota as arising in the tax year ended 5 April 2014. It could also be possible to claim the loss as arising two years earlier, if it can be proved that the quota was also regarded as having a negligible value two years ago.
Changes recently announced for the CAP will mean that milk quota will not have any value after March 2015. If quota held was paid for, a capital loss will be established in March 2015. It may be possible to establish a capital loss for the quota for an earlier date if a negligible value claim is made. Whether this is tax efficient to do so will depend on what capital gains have been made, or are to be made, and what rate of Capital Gains Tax will be paid on the gains.
Please contact either Nick Dee or Peter Griffiths if you would like to discuss possible tax planning relating to any losses arising on milk quota, or any other Capital Gains Tax issues.