Farmers to trade in farming rights
New EU rules will create an active market for the rights to farmland subsidies, says RICS (Royal Institution of Chartered Surveyors), today, 23 January 2006.
The Single Payment Entitlement is a right to subsidy which replaces previous systems of EU financial support on arable land and livestock. It is granted to the farmer of the land, whether a landowner, tenant farmer or partnership working through a shared farming agreement. For the first time, these Entitlements have been 'decoupled' from the land itself and can be traded as separate assets when they are issued next month by the Department for Environment, Food and Rural Affairs (DEFRA).
RICS spokesman, Hugh Fell, said:
'For the purposes of valuation we will have a brand new asset that will be valued for security, taxation and net worth purposes. The market will be attractive to some but also risky, as high level political focus on the future of European farm subsidies continues.
'The basic underlying value of farmland may also fall where the new entitlements are detached.'
The market will be limited to those registered as farmers. Numbers have swelled in recent years to include amenity and hobby farmers, as well as those looking for favourable inheritance tax arrangements. Agricultural land and associated residential property may have relief from inheritance tax, though the tax authorities have recently recovered some relief on the residential side.
By the closing date of 15 May 2005, 122,000 businesses in England had applied for Entitlements. RICS estimates that the value of UK Entitlements is close to £800 million.
Tim Adams of Chartered Accountants Saffery Champness, said:
'The new Single Farm Payment regime throws up a host of opportunities but also a number of potential pitfalls concerning valuation and taxation that have the potential to impact significantly on how rural businesses are run. It's important that land managers are aware of these and seek appropriate advice, because failure to do so could lead to unexpected tax bills and real financial hardship.
ENDS
Hugh Fell heads the Valuation of Rural Property for the RICS and sits on their Valuation Standards Board.
Since the McSharry Reforms in 1992 certain sectors of agriculture received direct subsidisation for production of food, namely cereals, beef and lamb. This changed in 2004 and since January 2005, subsidies are now fully decoupled from production. Farmers no longer need to produce in order to receive the subsidy. They must however comply with certain cross compliance standards which aim to protect and enhance the environment. This de-coupled change is known as the Single Payment Scheme and is the single biggest reform and change to the UK agricultural sector in the last 13 years.
Gone is the Suckler Cow Quota, Sheep Quota and Arable Area Payment. In their place, farmers now have Single Payment Scheme Entitlements. The new scheme replaces 13 previous different schemes with one single application, which DEFRA hopes will reduce the amount of red tape. Farmers will need to complete only one application annually in order to receive their subsidy payment.
The subsidy will be based upon the number of Entitlements that the producer holds on 15 May of each year. The Entitlements have an annual value and by 2012 all Entitlements in England will receive the same flat rate payment per hectare within three regions. Lowland, Severely Disadvantaged and Moorland. This Regional Payment only represents 10% of the payment in 2005 escalating to 100% by 2012. During that period a reducing element of the Entitlement known as the Historic Reference, will be paid - a calculation based upon the average production in the reference years (2000, 2001 and 2002).
RICS is helping members to get to grip with the trading, valuation and taxation issues surrounding the Single Payment Scheme with a series of seminars around the country aimed at keeping members fully informed to ensure the best advice is given to clients. The seminars, which are being arranged in conjunction with Saffery Champness, are due to take place in the following locations:
31st Jan - Dorchester, Athelhampton House & Gardens House
1st Feb - London, RICS,12 Great George Street
2nd Feb - Bristol Zoo
7th Feb - Northwich, Arley Hall
8th Feb - York, Hazlewood Castle
9th Feb - Peterborough, The Haycock Hotel
14th Feb - Edinburgh, The Sheraton Grand Hotel
To book a place please contact Marie-Louise Reynolds - Tel: 020 7841 4096 or email marie-louise.reynolds@saffery.com
