A key question for English farmers is how to fulfil the requirements of the Agriculture Act 2020 after 2028, when Direct Payments are phased out, and still remain profitable.
The answer according to the government is twofold; to cut costs and improve yield, especially by investing in new technology, and secondly by participating in the Environmental Land Management scheme (ELM).
The ELM scheme is divided into three parts. The first of which, the Sustainable Farming Incentive pilot scheme, starts in October 2021.Information on the Local Nature Recovery and the Landscape Recovery schemes will be available later this year.
A Sussex farmer has anticipated the changes needed for his arable business to participate in the ELM scheme which will require him to take sixteen percent of his arable land out of production in order to introduce measures to improve his farm’s natural capital: 1) creating linear habitat to encourage beneficial insects 2) bringing blackgrass under control using overwinter cover crops; 3) using fallow crops to improve soil health on the poorest land; and 4) establishing areas of wild bird cover on unproductive land to balance the scheme.
Defra has indicated farmers who are unwilling or unable to transition to the ELM scheme are likely to be offered the chance to take a lump sum exit payment in 2022 to make way for other farmers who are, which may mean accelerating succession planning.
However farmers would be wise to consider the tax implications of these proposals.
For example, it is not known if the lump sum payment will be subject to Capital Gains Tax (CGT).
In addition, currently environmental schemes do not qualify for IHT Agricultural Relief (AR). If too much land is taken out of agriculture into ELM, a claim for AR on the farmhouse and buildings may be at risk. The Balfour tax test requires no more than 50% of the business to be non-trading, so involving tax consultants alongside expert lawyers when planning your future business is crucial.
We regularly advise farm and landowners on succession, estate and tax planning. Our dedicated agricultural team includes expert lawyers and accountants. Please get in touch email@example.com for more information.
This article first appeared in South East Farmer https://issuu.com/kelseygroup/docs/sef09sept21/1?ff