Calling all Farmers

The EU Common Agricultural Policy (CAP) reforms have led to ten major CAP payment schemes being replaced by one new single payment - the Single Farm Payment (SFP). The SFP is considered by many to be the most fundamental change to farming for many years. One of the most notable changes is the introduction of ‘decoupling’ - ie payments to farmers are no longer linked to production. In effect this means that a farmer can cease to produce agricultural products altogether and still receive financial support.

There is a one-off opportunity in 2005 to receive payment entitlement (PE). Thereafter SFPs can only be received by acquiring entitlement from another farmer.

How is the SFP to be treated for tax purposes? There are variations in the precise detail of the scheme across the UK but the tax implications are broadly the same.
Is the SFP taxable?

Yes, whether or not it is linked to the production of saleable produce. Expenses are deductible if they are incurred ‘wholly and exclusively’ for trading purposes.

What about capital gains tax (CGT)?

PE originally springs from the land. However it is a tradable asset and so in the Revenue’s view it is a freestanding asset not permanently linked to any particular parcel of land. It is treated as having come into being on 1 January 2005 at nil cost. Gains arising from transactions in PE are liable to CGT. If the PE is linked to a farming trade it is likely to be treated as a business asset and therefore potentially eligible for taper relief at 75%. Gains may be deferred under the rollover relief provisions.

Will inheritance tax reliefs apply?

PE itself is not eligible for agricultural reliefs but so long as it relates to a farming trade, it will generally qualify for business property relief at 100%.

Will I have to pay VAT?

If PE is sold without land, VAT is due at 17.5% on the sale. Where PE is sold with land, the position is more complex and VAT may or may not be due.

This is only a very brief outline of a complex scheme. Please talk to us if you have any questions or require more detailed advice.