De-linked BPS payments – what do we know?

A key proposal in the Agriculture Bill is that direct payments will be de-linked from the requirement to farm the land as they are phased out.

Farmers will also be given the option of taking these de-linked payments as a one-off lump sum payment in place of their annual basic payment.

This suggests that there will be options for farmers, depending on their individual circumstances, which go beyond deciding to continue to farm as usual and accepting a reducing annual basic payment through until 2027.

Some might choose to take the capital sum and use it to fund improvements in their business. Others could decide to cease farming altogether and plough their money into their pension or use it to reduce debt.

The government had not yet given any detail of how the payment will work or its likely value, but if the net present value of the future income stream is calculated then in theory the payments should be worth about £750/ha in 2021 (for an English non-SDA farm). This is just over three times the value of the current annual payment.

However, exactly how the payment will be calculated is not the only unknown, so until more information is provided farmers will be unable to decide whether taking the cash as a capital sum will be the right decision for them.

At this stage, we don’t know what the tax implications of taking the capital sum will be. Is this sum going to be treated as capital, or is it going to be income, or indeed will it be taxed as a premium?

Will there be a cap on the capital sum the government is prepared to pay out to individual businesses?

On what date will the eligibility for this capital sum be set? Will it be based on historic claims or will it be based on a future date?

What happens to farm sales spanning the period between the date when the eligibility is crystallised and the date on which the payment is made?

What are the implications for landlords if the tenant takes the capital sum and retires? What is going to be the knock-on effect for the rental market in the short term?

Ultimately, while the de-linking proposal should offer farmers greater flexibility, more information is needed to enable people to take informed decisions. Every farmer’s circumstances will be different so there can be no standard recommendation.

For more information on the Agriculture Bill and what it could mean for farmers download a copy of the Spring/Summer Land Business magazine or contact a member of the Farming Department.