Not a farmer? Never mind, get paid not to farm

There are few ways left to escape inheritance tax, so people are flocking to take advantage of exemptions for farmland and buildings. What's more, even city dwellers can qualify for subsidies. So should you try fantasy farming?

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There may be many downsides to being a farmer, but it also comes with a variety of perks, the main one being the fact that land and farm buildings are exempt from inheritance tax (IHT). There aren't many ways left to get out of IHT these days, so this loophole has had the entirely predictable effect of filling up the countryside with lifestyle farmers. They leave the tractor and mud stuff to contract farmers, install a Smallbone kitchen with red Aga, and then sit back to live the tax-free country dream while gloating over the way demand from their rich peers has pushed the price of farmland up 130% since the early 1990s.

Who qualifies for farm subsidies?

But over the last week it has emerged that if City boys want to make money out of fantasy farming they now don't even have to bother with the Aga. Instead, they can clean up from the comfort of their Canary Wharf desks. How? Simply by exploiting an EU loophole on farm subsidies, says The Daily Telegraph.

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It used to be that farm subsidies were paid directly to farmers based on how much they produced, or how many animals they actually had. No more. Today, subsidies are paid to a farmer based on nothing except the subsidy that he used to be paid. This sounds absurd and it is. It has also had the effect of divorcing the cash from the land, enabling farmers to sell the subsidies the right to long-term cash flow to other farmers in exchange for a lump sum. Now, here's the good bit: the legislation, says The Times, is so "loose" that "in practice anyone can officially qualify to be a farmer", simply by holding a lease on 1.7 acres of land (there is no need ever to visit this land). This will get you a farm number, which you can then use to buy subsidies.

Could you profit from farm subsidies?

Right now, this works fantastically: think tank Open Europe last month sent a researcher to Scotland, where, without having to go near a pair of wellies, he paid a total of £562.82 for a subsidy that will bring in £306 a year until the EU's Common Agricultural Policy is next reformed' in 2013 (at the earliest). He got a particularly good deal, but still, the right to a subsidy usually costs no more than two to three times the annual cash flow from it (this is like being able to buy shares that have a guaranteed income and an obligation to pay out that income for a p/e of two or three times ie, very cheap indeed).

So should you do it? If you want to make a quick return, yes (subsidies are traded via land agents for those interested), but if you want to sleep soundly at night, maybe not. One landowner leasing out his land to faux farmers told The Times anonymously, "We shouldn't be doing this: it's a crazy world." But the last word on this must go to Neil O'Brien of Open Europe. "Only the EU could have created a situation where people who are not farmers are paid not to farm."

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.