Agricultural subsidies are now traded for hugh profits
Investors plough into farm handouts You can trade agricultural subsidies for a profit — even if you are not a farmer, writes David Budworth City investors have been exploiting an EU loophole that allows nonfarmers to claim agricultural subsidies in the hope of landing huge profits. A switch in the rules means that almost anyone can claim the handouts without needing to own the ground they are claiming for — or even going anywhere near it. Farmers can sell their subsidies independently from their land, enabling investors with no real connection to agriculture to buy the right to receive the payments. Auctions have been springing up across the country to cash in on the potential billion-pound market in “entitlement trading”, with demand outstripping supply by five to one. The profits to be made can be huge, with investors potentially doubling their money in six years. You need to qualify as a “farmer” before you can buy the right to a subsidy. That is not too difficult — you need only to hold a lease on agricultural land for 10 months of the year. You also need to own or rent an equivalent amount of agricultural land to that on which the subsidy payment is based. The land needs to be managed: you cannot just let it run wild. If you are not prepared to farm the land yourself you will have to employ someone to do it. That in itself need not be too costly. Some Scottish landowners have been leasing out large tracts of qualifying land for as little as £15 a hectare a year to enable people to play the system. The deals include the cost of a landlord who will look after it for you. The subsidy itself entitles you to receive a cheque from the taxpayer each year that typically amounts to between a third and a half of the original investment in the entitlement. The Eurosceptic think tank Open Europe, which discovered the loophole, paid £562.82 for a Scottish subsidy entitlement for 1.5 hectares worth £306 a year. If you are leasing land and labour for £15 a hectare you would pay back your original investment after two years. Almost everything after that is profit. As the payments are guaranteed until 2012 you will get back £1,183, before tax, 181 per cent over six years. There are risks and complications. Investors have to follow strict rules about which handouts they claim. Under the EU system there are six regions in the UK: England Lowland; England Moorland; England Severely Disadvantaged Area; Scotland; Wales; and Northern Ireland. The land that you buy to qualify as a farmer will be classed as being in one of these regions. You can only buy entitlements in the same area. You cannot buy land in Scotland and buy a right to an English subsidy, for example. You must also follow complex regulations imposed by Defra, the government department that deals with farming, and the EU, which requires the land to meet high environmental standards. This means filling in lots of complicated paperwork. The payments are only guaranteed until 2012. After that they may fall, and you won’t necessarily be able to find land to lease for as little as £15 per hectare. George Paton of the agricultural broker Webb Paton said: “The cost to a nonfarmer can be prohibitive, so it isn’t necessarily an easy route to big profits.” There is also a danger that the government will crack down if too many nonfarmers try to take advantage of the system. The government has already made it harder to claim inheritance-tax (IHT) breaks on farm property. Actively farmed land potentially qualifies for 100 per cent relief from death duty, which means it can fall out of your estate for IHT purposes after two years. In the past, most farmhouses qualified for the IHT exemption, but since 2005 they have been exempt only if the owners farm the land on a day-to-day basis. Vat must be paid on the upfront payment if you are not Vat-registered. You have to pay income tax on subsidy payments, and if you make a profit when you sell your entitlement there is capital-gains tax (CGT) to pay as well. However, the subsidies qualify for business-asset taper relief, which reduces CGT to 10 per cent after two years.
Investors plough into farm handouts You can trade agricultural subsidies for a profit — even if you are not a farmer, writes David Budworth City investors have been exploiting an EU loophole that allows nonfarmers to claim agricultural subsidies in the hope of landing huge profits. A switch in the rules means that almost anyone can claim the handouts without needing to own the ground they are claiming for — or even going anywhere near it. Farmers can sell their subsidies independently from their land, enabling investors with no real connection to agriculture to buy the right to receive the payments. Auctions have been springing up across the country to cash in on the potential billion-pound market in “entitlement trading”, with demand outstripping supply by five to one. The profits to be made can be huge, with investors potentially doubling their money in six years. You need to qualify as a “farmer” before you can buy the right to a subsidy. That is not too difficult — you need only to hold a lease on agricultural land for 10 months of the year. You also need to own or rent an equivalent amount of agricultural land to that on which the subsidy payment is based. The land needs to be managed: you cannot just let it run wild. If you are not prepared to farm the land yourself you will have to employ someone to do it. That in itself need not be too costly. Some Scottish landowners have been leasing out large tracts of qualifying land for as little as £15 a hectare a year to enable people to play the system. The deals include the cost of a landlord who will look after it for you. The subsidy itself entitles you to receive a cheque from the taxpayer each year that typically amounts to between a third and a half of the original investment in the entitlement. The Eurosceptic think tank Open Europe, which discovered the loophole, paid £562.82 for a Scottish subsidy entitlement for 1.5 hectares worth £306 a year. If you are leasing land and labour for £15 a hectare you would pay back your original investment after two years. Almost everything after that is profit. As the payments are guaranteed until 2012 you will get back £1,183, before tax, 181 per cent over six years. There are risks and complications. Investors have to follow strict rules about which handouts they claim. Under the EU system there are six regions in the UK: England Lowland; England Moorland; England Severely Disadvantaged Area; Scotland; Wales; and Northern Ireland. The land that you buy to qualify as a farmer will be classed as being in one of these regions. You can only buy entitlements in the same area. You cannot buy land in Scotland and buy a right to an English subsidy, for example. You must also follow complex regulations imposed by Defra, the government department that deals with farming, and the EU, which requires the land to meet high environmental standards. This means filling in lots of complicated paperwork. The payments are only guaranteed until 2012. After that they may fall, and you won’t necessarily be able to find land to lease for as little as £15 per hectare. George Paton of the agricultural broker Webb Paton said: “The cost to a nonfarmer can be prohibitive, so it isn’t necessarily an easy route to big profits.” There is also a danger that the government will crack down if too many nonfarmers try to take advantage of the system. The government has already made it harder to claim inheritance-tax (IHT) breaks on farm property. Actively farmed land potentially qualifies for 100 per cent relief from death duty, which means it can fall out of your estate for IHT purposes after two years. In the past, most farmhouses qualified for the IHT exemption, but since 2005 they have been exempt only if the owners farm the land on a day-to-day basis. Vat must be paid on the upfront payment if you are not Vat-registered. You have to pay income tax on subsidy payments, and if you make a profit when you sell your entitlement there is capital-gains tax (CGT) to pay as well. However, the subsidies qualify for business-asset taper relief, which reduces CGT to 10 per cent after two years.