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Tax-Free Income from Solar Panels Under Threat from Government Print E-mail
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Many readers will be aware that there has been a boom in the solar panel industry of late -  in no small part due to the very significant returns guaranteed by the previous government for renewable electricity "microgeneration".

Best of all, for people installing them in their own homes, this income was tax free, guaranteed 'inflation-proof' for up to 25 years. (As the income was index-linked).

For example, a week ago, a standard domestic installation to a pre-existing building completed by 5 April 2012 stood to yield 43.3 pence per kiloWatthour of electricity produced as the "Generation Tariff", together with roughly 3 pence per kiloWatthour (kWh) of electricity sold back to the National Grid as "Export Tariff". Each of these components of the "Feed In Tariff" was guaranteed to be tax free and inflation proof for the next 25 years, for this category of installation.

But the new government, having already accelerated scheduled reviews of these tax-free "Tariffs", has now announced the prospect of a massive reduction in the income that these solar installations will pay out. It proposes that, for any installations completed on or after 12 December this year, the Generation Tariff will be reduced to just 21p/kWh - about half of the amount originally promised

The consultation, announced on 31 October, also proposes to link the income award from future installations to the overall energy efficiency of the building - and if the building doesn't meet those standards, the Tariff will be reduced even more - to just 9p/kWh.

The consultation is open until 23 December 2012. However, it is unlikely that the government will be de-railed in its execution of these plans, given its concerns over the cost of renewable energy schemes already established.

It should be noted that the income to fund Feed In Tariffs is supposed to be borne by the utility companies - so effectively by increased costs of electricity to consumers who don't (or can't) take advantage of these schemes.

The revised figures are apparently calculated to give a return on the amount invested of about 4.5% and a payback period of roughly 16 years, which is about double the period under the existing regime - and these figures are based on a reduction to 21p/kWh, rather than just 9p/kWh. These changes will of course have a very significant impact on the viability of future installations.

Further information can be found at Gregory Barker's Written Ministerial Statement on Feed-In Tariffs Scheme

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About The Author

TW Articles Editor
Lee is TaxationWeb's Articles & News Editor and writes for TaxationWeb. He is a Chartered Tax Adviser with experience of advising individuals and owner-managed businesses over a broad spectrum of tax matters.

Article Added Wednesday, 02 November 2011 | 1492 Hits


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