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The Department for Environment, Food and Rural Affairs (DEFRA) has published a consultation entitled 'Direct Payments to farmers: Lump sum exit scheme and delinked payments in England'.

Background

As part of the seven-year agricultural transition period between 2021 and 2027, untargeted direct payments to farmers in England are being reduced to zero. There will be alternative support that will promote environmental improvements, animal health and welfare and the reduction of carbon emissions.

Under the new agriculture policy, it is proposed that:

  • In 2022, farmers who wish to exit the industry will be given the option of taking a lump-sum payment, capped at £100,000, in place of any further direct payments.
    • The lump-sum payment is intended to:
      • Help those who wish to retire or leave Farming in a planned and managed way.
      • Provide more opportunities for younger farmers.
      • Assist existing farmers who wish to expand.
    • This payment will be:
      • Based on English Basic Payment Scheme (BPS) entitlements, which will be cancelled.
      • Approximately equal to the direct payments which would have been paid from 2022 to 2027, for those unaffected by the cap. 
    • To be eligible, the retiring farmer would have to give up their land in England.
      • Owner-occupiers must sell, rent out or gift their land.
      • Tenants must surrender their tenancy.
  • In 2024, for all farmers, direct payments will be ‘delinked’.
    • BPS payments are based on ‘entitlements’: one hectare of eligible land is needed to claim payment for each entitlement.
    • Farmers must have the land at their disposal on 15 May of the scheme year.
      • Where land is let to a tenant, it is the tenant who has it at their disposal.
    • It is believed that direct payments hold back structural change within the industry and inflate farm rent prices.
    • Delinking means that claimants will no longer have to farm the land to receive the payments.

Consultation

The current consultation seeks views via a set of questions on:

  • The eligibility criteria and certain aspects of how the value of the lump sum should be calculated.
  • The reference period to be used to determine eligibility for and calculate the value of, delinked payments.

The consultation acknowledges that the tax treatment of lump sums and delinked payments is an important issue for many farmers. This matter is being discussed with HMRC and guidance will be provided in due course.

Responses can be made online or via post by 11 August 2021.

Comment

The economic landscape of farming is currently undergoing major change. Capital tax planning has always been of significant importance to those in the agricultural sector and paramount when planning for succession.

The possible impact of these proposals should feature in future farm tax planning: the disposal of land, even as a Gift, may result in Capital Gains Tax liabilities. On retirement, farmers may exchange valuable assets which might have qualified for Agricultural Property Relief and Business Property Relief for assets that do not receive any Inheritance Tax (IHT) reliefs. This can result in unexpected IHT liabilities if not planned for.   

Useful guides on this topic

Farming: Overview
What is farming? What are the tax consequences and tax considerations of farming?  

IHT Agricultural Property Relief
What is Agricultural Property Relief (APR)? When does it apply? What are the conditions and restrictions of the relief?

Farming: What expenses can I claim?
What expenses can farmers claim for tax purposes? Are there special tax and accounting rules for farmers? What are the rules for VAT for farmers? 

Averaging claims
When can profits be averaged? What trades does averaging apply to? How are averaging adjustments calculated and made?

Herd basis: Farming
The 'herd basis' recognises, for tax purposes, the economic nature of animals held for production as capital assets, rather than trading stock. This can be of benefit to some farmers and result in tax savings.

Farming: Capital allowance
This is a freeview 'At a glance guide' which provides a summary of the type of expenditure that may qualify for capital allowances in farming businesses and outlines some farming-specific points to consider.

External link

DEFRA: Direct Payments to farmers: Lump sum exit scheme and delinked payments in England


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