With land sales and new farm business tenancies being finalised ahead of Michaelmas, Julie Robinson looks at how parties might deal with the transition between the Basic Payment Scheme and delinked payments, due to be introduced in England in 2024.
Although we have not seen the regulations which herald the end of the Basic Payment Scheme (BPS) and the introduction of delinked payments, Defra and the RPA have announced that 2023 is the last year for BPS and in February this year published some guidance about its replacement, delinked payments.
In the meantime, it is no longer possible to transfer or lease out BPS entitlements; they serve no purpose and will simply be cancelled when BPS ends.
From speaking to clients and reviewing heads of terms it seems that not everyone is up to speed with the effect of the Government’s planned changes on land sales and purchases, new tenancies and farm reorganisations.
The indicative timetable below is based on the Defra guidance.
‘Later this year’
- Farm businesses who made BPS claims during all or any of the years 2020 - 2022 (the reference period) will be issued with an information statement from the RPA confirming their reference amount.
- The RPA will provide information about (1) how to transfer all or some of that reference amount to another farm business, and (2) how those inheriting land from a deceased BPS claimant can get the deceased’s reference amount transferred to them.
- Governing regulations will be introduced in Parliament. Only once the regulations have been approved by Parliament will we know the details of how the transition from the old to the new regime will work.
‘In early 2024’
- There will be a transfer period to enable transfers of reference amounts by those who want (1) to transfer all or some of their reference amount to another business, or (2) to have all or some of the reference amount of a closed SBI transferred to them. What is not clear at the moment is whether there will be further transfer periods after 2024 (the RPA has so far only said that transfers for inherited land will be available right up to the end of 2027).
Second half of 2024 and after
- The first instalment of delinked payments will be made from August 2024, with the second from December 2024.
- Delinked payments will be made twice-yearly after that, following the same pattern.
- As with BPS payments now, reference amounts will have progressive reductions applied to them from 2024 – 2027, the final year in which delinked payments will be made.
Single Business Identifiers (SBIs) are critical here. Just as with BPS entitlements, reference amounts will be allocated and transferred from and to SBIs. Dates also matter.
The right to receive a delinked payment depends on an SBI’s BPS claims during the 2020 – 2022 reference period and that SBI having made a BPS claim in 2023. The only exception is re: inherited land (see below).
In other words, farm business with a ‘live’ SBI will be allocated a reference amount if it made BPS claims during the reference period, but it will not be eligible to receive the delinked payments derived from that reference amount unless it also made a BPS claim in 2023.
To sum up, in the ordinary course of things:
- a transferring business will need to have an SBI number and a reference amount; and
- the receiving business will need to have an SBI and to have made a BPS claim in 2023;
- If you inherit land from a farmer who claimed BPS in any year of the reference period, you can ask the RPA to transfer their reference amount to you. If the farmer died after 15 May 2023, you do not need to have made a BPS claim in 2023.
- If you have rented, taken back in hand or bought land from someone whose SBI is now closed on the RPA system, and provided you made a BPS claim in 2023, you can ask the RPA to transfer some or all of their reference amount to you. Evidence of the relevant land transfer will be needed.
Where the reference amount is in the hands of a seller, the seller has a ‘live’ SBI, and the buyer’s business made a claim in 2023 (whether it has a reference amount or not), it will be possible for the seller to transfer some or all of its reference amount to the incoming buyer in early 2024. Contracts should provide for this.
If the seller made a BPS claim in 2023, the parties may prefer to keep the reference amount where it is and simply adjust the land price to reflect that. The seller will receive the delinked payments for the remaining years of the transition period (2024 – 2027) whether he owns other land or not.
In any circumstances where the buyer not eligible to receive a transfer of reference amount (e.g. because it made no claim in 2023) it will be a matter of negotiation as to whether to factor the ‘lost’ subsidy into the price.
Caveat: If the seller's reference amount is more than £30k, and only part of that reference amount is to be transferred, the RPA will need evidence of the land transfer from the seller to the buyer and this land transfer must have happened before 16 May 2023. That will be an issue for this year’s Michaelmas sales.
Again, if the incoming tenant has an SBI and made a BPS claim in 2023, they will be able to receive a transfer of reference amount and receive delinked payments for the remaining years of the transition period. If the FBT is a short term let, parties may want to stipulate that the tenant will transfer the reference amount to the landlord/the next incoming tenant at the end of their tenancy (bearing in mind that we do not yet have confirmation that transfers will be possible throughout the remaining transition period and that progressive reductions will mean the payments will be very low by then).
The real question on the grant of a new tenancy is who holds the reference amount derived from occupation of the holding during the reference period. If the landlord does, they may be happy to transfer it, adjusting the rent accordingly. If it is held by a previous tenant, whether they have an obligation to transfer the reference amount will depend on the terms of their tenancy (quite a few BPS/entitlement clauses we have seen do not cover that scenario). Conversely, if the outgoing tenant did not make a BPS claim in 2023, they might be open to agreeing a transfer of the reference amount as they will not be eligible to benefit from the associated delinked payments.
Caveat: If the reference amount is more than £30k, and only part of that reference amount is to be transferred, the RPA will need evidence of the land transfer from the transferring business to the receiving business, and this land transfer must have happened before 16 May 2023. That may be an issue for this year’s Michaelmas tenancies.
We have several instances where farming families are restructuring, and a new business is being set up, with the old business continuing as well.
If the new business made no BPS claim in 2023 it will not be possible to transfer any reference amount from the old business to the new one. In that case, parties may simply agree to factor the income stream from future delinked payments (which will be made to the old business) into the overall deal.
It will be clear from the above that anyone coming into farming as a new entrant since 15 May 2023 will not - unless they inherited land - be entitled to receive a transfer of reference amount and, in turn, delinked payments. Unless Defra makes allowance for this, new entrants will be left without the direct payment support that most existing farm businesses have.
If you would like any further information, we would be happy to assist. Please do get in touch with your usual legal adviser at Roythornes or with Julie Robinson on 01480 772211 or at firstname.lastname@example.org.