We have guided clients through the financial aspects of projects in wind turbines, anaerobic digestion plants, biomass boilers and photovoltaic units. We take into account the following issues:
Where landowners have reduced their farming activities in recent years in favour of renewables, questions may be asked about the position of the farm from a capital gains and inheritance tax perspective. Careful structuring and wording of partnership agreements to clarify ownership of assets can help to ensure the partnership qualifies as a farming business ‘in the round’ and has a better chance of qualifying for 100% IHT business property relief. Consideration needs to be given to the ownership of the underlying land where the renewables project will be installed. Complex valuations for Inheritance Tax may be needed in future years if an owner were to die. If the project was owned by the younger generation then this extra administration might be avoided.
Consider whether income generated is trading or non-trading income as this can affect how the resulting income is assessed for tax purposes. Domestic supplies will not get capital allowances nor will the future income streams be taxable. Expenditure and any capital allowances need to be carefully considered as tax relief is available on certain technologies in the first year.
As the Feed-in Tariff rates reduce, the returns on these projects are falling but they still offer returns of 5-10% after tax - considerably more than returns from conventional farming. Long term market outlook and the tax treatment of Feed-in Tariffs, your capital outlay and any income generated all need careful consideration when assessing the viability of renewable projects. Your eligibility for R&D tax credits also needs to be taken into account. Having a tax efficient investment structure from the outset can make a huge difference.