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Tax Losses Opportunities For Estate Owners

Many rural sporting and amenity properties operate at an annual deficit. As a result they can carry significant tax losses, a valuable asset often overlooked.

Where an enterprise is not operated as a trade these losses are rated as Schedule A. The estate owner may establish a highly profitable trading enterprise from which Schedule D profits are derived but under the current rules Schedule A tax losses cannot be offset against trading profits.

As a result, many owners of rural property are sitting on a potential goldmine of unused tax losses - in some estimates amounting to well over 100m, with little prospect of ever recouping them from the Inland Revenue.  Under current regulations, however, it may be possible to acquire a commercial investment property yielding a healthy annual profit and to set off accumulated Schedule A tax losses against this for the present and future years.  Regulations allow the rental income from such an investment to be counted along with the other Schedule A estate enterprises and the right investment, as well as producing a useful cash income to the Estate, can produce a tax-free revenue stream for as long as it takes to gobble up carried forward Schedule A losses.  

We have written previously about the possible merits of those heavily exposed to illiquid and low yielding rural assets to consider realising some of these or gearing up against them to raise borrowings to invest in commercial property. Whilst such a strategy will not suit all and accountants should be consulted, the tax losses are important assets that need to be considered in strategic estate planning and management enterprise.

For more help and advice why not contact your nearest CKD Galbraith rural services department.