Consult experts if youre thinking of getting out…

27 July 2001

Consult experts if youre thinking of getting out…

Some producers have taken

a long, hard look at their

businesses post foot-and-

mouth and decided to quit

the hot seat. But whats

the best option?

Wendy Owen reports

MANY producers thinking about leaving farming have three options – sell the farm, let it out on a farm business tenancy or establish a farming contract.

Before making any decision, producers should seek several expert opinions and organise a sit-down discussion with family members, to make sure their decision is the right one, says Mike Greaves, a consultant with farm business consultant Andersons.

If selling up seems the best option, producers must remember that IACS payments can only be cashed if the farm trading account is left active, warns Mr Greaves. Some payments may not arrive until up to two years after claims are made so keep the account open until all cheques have been cleared.

The possibility that stock slaughtered due to foot-and-mouth may have been killed during the retention period could also create difficulties, he says. "We are assuming that claims for livestock slaughtered during the retention period will be met, although at the moment the rules are unclear.

"If the producer has not restocked to previous levels by 2002, his quota could be confiscated. In any case, there may not be a demand for the sale or lease of quota."

Capital gains and inheritance tax will also affect finances if the farm is sold. But individual advice must be sought because each farm is different, advises Mr Greaves.

If the unit is to be let out on a farm business tenancy, new tenants will take over the IACS acreage and receive subsequent payments, so this should be reflected in the rent, says Mr Greaves.

"We presume that on a lowland farm, the grass will have to go on the new tenants IACS form prior to May 15 for it to be eligible as forage area during that claims year. On holdings where LFA and HLCA payments applied, the farmer must have made an IACS application in the previous year.

"If livestock has been culled, there may be a year in which no claim can be made and the new tenant could have to wait 12 months before he can receive payments."

Extreme care must be taken to ensure forage requirements are adhered to, he warns. Equally, quota transfer requirements must be satisfied to avoid possibilities of quota loss or clawback.

"When the unit is let on an FBT, its owner or previous tenant will no longer be classed as a farmer, which may mean he could lose his VAT-registered status. Any money received as rent will be perceived as unearned income and be taxed accordingly," he says. "Inheritance tax relief may also no longer apply."

However, if a farming contract is established, the original owner or tenant retains his status as a farmer and that can be a more attractive financial prospect. But he will still play an active role in running the unit and that might not suit everyone, especially those nearing retirement, says Mr Greaves.

"In the farming contract, IACS payments go into an account set up by the original producer and that money is part of a surplus shared out by prior agreement.

"Tenancy agreements should be consulted in case there is a clause preventing the land being contract farmed. Generally, contract farming arrangements do not need the landlords permission, but it is often best to discuss it with him."

Mr Greaves adds that in areas where several neighbouring farms have had livestock slaughtered and are planning to restock, there is an ideal opportunity to co-operate with each other for greater efficiency.

"Neighbours could arrange to share machinery, bulk buy inputs or even batch farm the same breeds or crosses to fit in with the same outlets." &#42

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