Historically, farmers have provided for the population by producing the basic necessities of life such as food and clothing materials. In modern times, energy is the most precious and yet essential of commodities, so it seems only natural that the evolution of farming should include the supply of renewable energy.
From hosting wind farms and solar panels to the installation of anaerobic digestion systems, farms are the perfect vehicle for continuing the re-invention of the word “green”. With recent poorer harvests and the adverse economic climate, investing in renewable energy projects can make good use of both available land and farming by-products, and can offer a more secure source of income.
Solar panels are an important option but factors such as location, the lie of the land, planning permission, visual impact and possible local objections should be considered. These could all affect the value of the investment and subsequently your return.
There are financial issues and tax implications which need to be considered and advice should always be sought from an Accountant before entering into any agreement. For instance, it is very important that any land used for renewable energy of any kind retains its agricultural status, otherwise the entitlement to Agricultural Property Relief may be lost when the land is disposed of or bequeathed, and this could raise issues with Inheritance Tax.
The cost of the solar panels will normally qualify for capital allowances and you can get tax relief of up to £500,000 from 1 April 2014.
Any income received will be taxable as business income unless it comes from leased land, in which case it will be taxed as rental income. It’s also important to remember that any energy sold to the National Grid attracts output VAT and must be included in returns and paid over to HMRC in the same way as any other taxable supply (although the Feed-in-Tariff is exempt).
Should you require any further information or advice please do not hesitate to contact Green & Co.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.