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HMRC internal manual

Inheritance Tax Manual

Other issues: Single payment scheme

The Single Payment Scheme was introduced by the EU to replace a wide range of farming subsidies under the Common Agricultural Policy and break the link between subsidies and agricultural production.

The Scheme came into force on 1 January 2005. Entitlement to the annual Payments was to be established by individuals who applied by May 2005, and once obtained such entitlement could be bought and sold in the open market, thereby acquiring a value.

The significance of this from an agricultural relief point of view is that:-

Although entitlement could only be held by, and sold to, persons registered as “farmers”, this definition could cover many who would not be “occupying for the purposes of agriculture” for Inheritance Tax (IHT). Therefore, mere entitlement to Single Payments is no guarantee that s117 IHTA is satisfied in respect of the residence of the holder

For the purposes of the Single Payment Scheme agricultural activity is defined as meaning ‘the production, rearing or growing of agricultural products including harvesting, milking, breeding animals and keeping animals for farming purposes or maintaining the land in good agricultural and environmental condition.’

Therefore a claimant can qualify for the payments by keeping his land in good agricultural and environmental condition (GAEC), but the claimant does not have to be in active agricultural production.

The requirements of GAEC cover a number of management objectives for qualifying land, which must be met, including soil management, maintenance of habitat and landscape features, and protection of hedgerows and watercourses. The provisions for eligible land which is not in agricultural production (GAEC 12) lays down the minimum standard of farmland management consistent with being paid the single payment. As a minimum the land should be kept in such condition to allow an Inspector to identify it and inspect it - to enable the Inspector to be able to measure, walk and identify any features on the land that should be excluded.

As a minimum the farmer must cut, scrub and cut and graze rank vegetation on whole area at least once in five years. Thick scrub should be prevented as the land should be kept in condition where it could be readily returned to agricultural production by the next growing season at the latest.

Regarding the interaction of the Single Payment Scheme with IHTA 1984, Section 117 does not require agricultural land to be in production either continuously or at a specific time. However it is considered there must be an intention or expectation that the land will be back in production at some time in the future.

However a landowner who had ceased production and was merely keeping his land in good agricultural and environmental condition in order to claim the single payment may be unable to satisfy the definition of a farmhouse for Inheritance Tax purposes as discussed above. Caseworkers who encounter difficulty in such instances should contact Technical in Nottingham for assistance.

Land used for grazing leisure horses does not satisfy the ‘occupied for the purposes of agriculture’ test and so cannot qualify for agricultural relief.

Because entitlement to Single Payments is not an ‘interest in land’, and thus does not meet the definition of ’agricultural property’ in S115(2), agricultural relief will not be due on its value in any event.

From 1 January 2015 the Single Payment Scheme was replaced by the Basic Payment Scheme. Although there are some differences in the details of the new scheme the treatment for IHT purposes is unaltered.