Agriculture & Rural Property

Publish date

17 February 2023

What next for farm payments?

What next for farm payments?

Many farmers rely on the Basic Payment Scheme (BPS) as a source of income. However, as the BPS winds down, famers need to consider what other revenue stream options they have. As a reminder, BPS will be phased out completely by the end of 2027.

So, what are the options for farmers?

Environmental Land Management Schemes (ELMS)

The overarching purpose behind ELMS is to encourage environmentally friendly and sustainable use of land while at the same time supporting the rural economy and aiming to comply with the Government’s goal of achieving net zero emissions by 2050.

There are three new ELMS that will reward environmental land management:

1.    Local nature recovery

This scheme will pay farmers for actions that meet local environmental priorities and support local nature recovery. It is designed to facilitate collaboration between farmers; helping them work together.

2.    Landscape recovery

This scheme will support landscape and ecosystem recovery through long-term projects. For example, large-scale tree planting or peatland and salt marsh restoration.

3.    Sustainable farming initiative (SFI)

This scheme will pay farmers to manage their land in an environmentally sustainable way. The scheme consists of a set of standards each based on a feature (such as hedgerows or grassland). For each set of standards there will be a group of actions to be carried out. Farmers can then choose which standards they want to apply to their land. Payment will be made for carrying out these actions.

The first two ELMS are in their pilot phases and due to launch in 2024 whereas, SFI has finished its pilot and has now gone live. For more information on these schemes click here.

Alternative options to ELMS

Landowners are still able to utilise schemes such as:

–    the Countryside Stewardship Schemes (CSS), which provides financial incentives for farmers, foresters and land managers to look after and improve the environment; and

–    the England Woodland Creation Offer, where support is given to create new woodland.

Leases of solar panels and wind turbines can also be an option although, their popularity and availability varies greatly depending on location.

Another method a landowner can use in order to maintain their revenue stream is provided by the provisions in the Environment Act 2021 (which will come into force in 2023). These provisions require all planning permissions to increase the biodiversity net gain (BNG) of a site by 10%. However, the gain does not necessarily need to be achieved on the development site itself. Therefore, landowners have the opportunity to offer up their land as BNG units to be used by developers to achieve the BNG required.

Trade in BNG units is in its infancy but, the sale of BNG units certainly represents a further potential source of income for landowners. This is especially so where landowners hold scrubby land that, historically, has been unproductive and unable to produce a significant income. Landowners are able to choose between dealing direct with developers and entering into 30 year (minimum) arrangements with land banking businesses which then sell on the BNG units to developers.

Letting your land to a land banking business can be appealing as you have a guaranteed income for 30 years. However, this is a long-term commitment when you could achieve a similar income by “stacking” more than one CSS and/or ELMS and, given these schemes last up to 5 years rather than 30, you retain greater flexibility over your land.  New entrants, however, can only apply for CSS during 2023 so decisions need to be taken promptly.

A long lease with a land banking business incorporates a habitat management agreement which sets out the steps that must be taken on the land to make it eligible for BNG units and the oversight required by the business can make this unappealing to those who have been used to autonomy throughout their farming careers. It is important to note that not all land will be suitable for the creation of a habitat bank and that it does have to be “created” with no reliance able to put on existing good habitat.

Are there any concerns about these schemes?

There are concerns among the farming community – as well as the general public – that the Government has put too great an emphasis on sustainability and achieving the net zero target to the detriment of food production.

The UK is far from self-sufficient, importing 46% of the food consumed by the nation in 2020 (according to Government statistics) and many farmers want to be encouraged to increase food production accordingly rather than take land out of production for environmental schemes.

However, farmers and landowners should remember that they can run different schemes side by side, putting their unproductive land into environmental schemes while keeping their productive land for food production. This spreads the risk for their revenue production.

Do Environmental Land Management Schemes impact tax reliefs for inheritance tax?

In order to claim agricultural relief (AR) on land it must be used for agricultural purposes, as I explained in an earlier article. The concern is that many of these schemes will take land out of agricultural production and so on the face of it may no longer be eligible for AR.  However, if land is not used for agricultural purposes but remains part of the overall business it may instead be eligible for business relief (BR).  Whether such a claim would be successful would depend on the extent of the land used by the scheme and other diversification which has taken place.

Currently a business must be mainly trading to attract BR and so if this remains the case even if perhaps the land is let for BNG units then BR should still be available.  However, the claim will weaken as more land is let or taken out of production.  Even if BR remains available, the valuable AR for a farmhouse may be lost.

Currently there has been no guidance on how AR or BR may interact with the environmental aims of the Government.

Our comment

The change in farm payments is the biggest shake up in the UK’s agricultural world since joining the EU and subscribing to the Common Agricultural Policy.  It will be unsurprising if there are teething problems and uncertainty within the rural community as to whether or not these schemes are all the Government hope they will be. However, there are many arrangements out there for the landowning community to choose from and the hope is that there will be something to suit everybody.

If you wish to discuss any aspect of your rural business please do not hesitate to contact a member of Thomson Snell & Passmore’s expert Agricultural & Rural Property team

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