The ‘Path to Sustainable Farming’, published by the Government on 30 November sets out more detail on changes to direct farm subsidy payments following the UK’s withdrawal from the EU. More importantly for most farm businesses, it also elaborates on the effect which the first few years of the new regime will have on existing farm subsidies.
Until now, the BPS payments represent a major source of income for many farming businesses and the government has now confirmed they intend to phase out direct farm subsidy payments in England over the 7 year agricultural transition period between 2021-2027. The ending of direct payments is intended to free up funding to reinvest into the delivery of public goods, some of which will be through a new Environmental Land Management Scheme (ELM).
Impact on Agricultural Property Relief
However, whilst it may be prudent for some farming businesses to restructure and reorganise to ensure that their income streams are maintained, the plan to de-link direct payments from the requirement to occupy land may have serious implications for the availability of Agricultural Property Relief for inheritance tax purposes. Under the current system, an entitlement to Basic Payments is often a helpful factor in arguing that that an individual is a farmer and occupies the land in question for the purposes of farming, and as such qualifies for Agricultural Property Relief.
Who is eligible for ‘de-linked’ payments?
However, under the proposed de-linking of payments, it is the government’s clear expectation that it will be tenants, rather than landowners, who claim BPS payments during the reference period who will be eligible to receive the new “de-linked” payments. This removes any direct requirement for the recipient to be in occupation of land and is designed to encourage farmers to invest, diversify or retire. However, any move to do so comes with an inheritance tax risk as APR may be lost if there is a move away from agricultural activity and/or the farmer is no longer in occupation for the purposes of agriculture.
DTM Legal LLP recommend that all farmer and landowners review their position in view of the impending legislative changes but as ever, we remain on hand to guide you through these uncertainties. For advice please contact Emily O’Donnell on 01244 354 822 or Amanda Bailey