Wind Farms – tax considerations
Following the recent introduction of Feed-in- Tariffs (FiTs) by the government many renewable technologies have been enjoying significant interest. In particular the number of planned installations of wind turbines has increased considerably. But what are the tax implications of such an installation?
Where the wind turbine is not part of a domestic installation, then the income from the turbine will be taxable. HM Revenue & Customs have confirmed that where a turbine is installed to offset a farm’s electricity costs the income can simply reduce the electricity expense in the accounts.
The installation of wind turbines in a business will attract capital allowances including a proportion of the associated professional costs and site preliminaries.
The government intends to provide more certainty about the rate of these capital allowances following a recent consultation.
Where a wind turbine is installed by a farmer as part of the business then it should be possible to obtain Business Property Relief (BPR) on the turbine and the site. Depending on how the asset is owned this effectively means that some or all of the value of the turbine and site would be excluded from the deceased’s estate.
However, the position is less clear where a farmer leases land to a third party operator, and the third party installs the wind turbine. In this situation the site would effectively be an investment in the hands of the farmer (or landlord) and would therefore be unlikely to qualify for BPR. This would result in the site being included in the deceased’s estate at its full market value. Any market valuation is likely to be reflect both the rental payable under the lease agreement and the remaining term of such an agreement.
This said, following recent developments in case law, there may be an opportunity for active farmers who have let land under a lease agreement for the installation of wind turbines to still qualify for BPR on the site. Such case law suggests that the farmer needs to be able to demonstrate that the turbine investment site is an integral part
of the farm business.
Care must also be taken where the capital value, revenue and profit from such a leased site could outweigh those of the farm business itself. In this situation an estate could face losing BPR on all of its farming assets.
For these reasons proper tax planning is required before committing to leasing land for this purpose. It may be that such assets are better owned in a separate entity to prevent the loss of BPR on the existing trading assets. The capital gains tax consequences of making any transfers of assets, including their timing, would also need to be considered.
In addition it is very important to consider the VAT implications of any taxable supplies made from the wind turbines in the form of both the generation and export FiTs.