There are few good news stories to come out of the loss of BPS payments. However, one slight upside is that the reduction in basic payments could help farmers cut their capital gains liability.
This is only possible if farmers did not claim for all of their BPS entitlements by May 15 this year. Any unclaimed entitlements, whether bought, traded, or inherited, will now have no value and cannot be traded.
As a result, it may be possible to submit what is called a negligible value claim for the unused entitlements, enabling farmers to offset CGT on other asset sales or other disposals, or a claim for a loss on the extinction of an asset, should that asset be irreparably damaged.
In the case of BPS entitlement values, 100% of the purchase price can be offset against other gains, along with any agents’ and legal fees directly attributable to the transaction.
In cases where entitlements were gifted or inherited, the value of entitlements at the time of the gift or inheritance will form the basis of the claim.
Making a Claim
Claims for both negligible value and loss on the extinction of an asset are made on the self-assessment tax form, so now is the time to consider getting this sorted out.
CGT losses can be carried forward to offset other CGT liabilities, but they cannot be carried back to set against income, so if you have made gains in 2022-23 and all previous losses have been brought forward already, a claim is likely to be the most effective way of reducing your future CGT liability.
However, Ian Parker, tax expert and director of Whitley Stimpson, said care must be taken when considering who owns the entitlements.
Whereas this is easy in the case of a sole trader, partnerships can be more complicated to determine.
“In farming partnerships, the assets are often owned outright by one partner, and it is only the profits from the business that are shared. Therefore, questions might arise around who owns the entitlement, and that might have to be dealt with carefully.”
Ian added that in the case of farms that are limited companies, the situation is clear and simple.
“Limited farming businesses can offset capital losses against capital gains in the standard way,” he said.