MONEY MATTERS
RENEWABLE ENERGY A WINDFALL FOR LANDOWNERS
The Chancellor, George Osborne, announced a reduction in the level of feed-in tariffs available for onshore wind farms in his Autumn Statement last December. However, this does not mean wind energy is not an attractive prospect for landowners any more. If a site is viable, wind energy can represent a reliable source of income for a landowner for a number of years.
MAIN BENEFIT
One of the main benefits of a wind farm development is that landowners can continue to farm or use the land and so there is minimal reduction in other income streams. Farming, for example, can continue around the turbines.
INVESTMENT STRUCTURE
Once a landowner has decided to proceed with the development of a wind farm, and has established a relationship with a developer, they will need to consider how best to structure the investment.
The most straightforward option is to grant a lease to the developer. The developer will then take sole responsibility for the development and will often assume all of the risk, deal with members of the public and pay legal fees. They will simply pay the landowner a rent. This is the most hassle- free and lowest risk option for a landowner.
JOINT VENTURE (JV) OPTION Another option that we are seeing clients consider is structuring the wind farm as a JV with the developer. This allows the landowner a much greater share in the profits. There are different tax consequences and, for example business property relief could be available for inheritance tax purposes, and entrepreneurs’ relief could be available for capital gains tax purposes.
But choosing a JV, while financially rewarding, can be complex, and careful consideration of the structure is needed for the type of entity to be used (for example a company, an LLP, etc) and the tax consequences that follow.
PROVISION DECISIONS
There are also decisions that need to be made during the early stages of a wind farm development to help manage family wealth and succession, and the tax exposure of the future growth in value of the estate. We are seeing clients considering settling the future income stream into trust, or passing it to future generations.
CAPITAL ALLOWANCE
The potential availability of capital allowances for a wind farm development should also be considered carefully. These could provide an attractive tax incentive if the wind farm were to be a business or form part of a business.
VAT CONSEQUENCES
Landowners should also consider the VAT consequences of the new venture. Depending on the position of the particular area of land, VAT may be chargeable on the rental income received, and VAT on some expenses may be reclaimable.
POSITIVE OUTLOOK
Despite the potential complexities, the outlook for landowners in the wind energy market is still promising. If careful consideration is given to the structure of the investment and its consequences, and appropriate advice is sought, investing in wind energy can be an astute long term investment.
Ayshe Peck PwC
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