Milk Quota was first introduced more than thirty years ago to limit milk production as out-of-control EU subsidies contributed to the formation of the metaphorical milk lakes and butter mountains, with excess produce stored at huge cost or dumped on world markets with export subsidies. Countries whose dairy farmers produced more milk than quota held were penalised by a levy on the surplus milk produced, which was a cost borne by the dairy farmer themselves via their milk purchaser.
In the 1980s and 90s the UK was regularly over quota, and this resulted in many land agents trading milk quota across the country. However Townsend Chartered Surveyors were always one of the front runners, often devising new schemes to assist dairy farmers in the initially complicated process of obtaining the quota they needed at the most competitive price. For example in the 1980’s Hugh Townsend developed a system for leasing with land, he also created the first national milk quota sales price index and graphs with Farmers Weekly in 1991, developed the 2nd TQ1 form process to improve security for the sellers of milk quota which had then to be transferred “with land”, and was involved in the first landlord/tenant milk quota compensation arbitration.
After the UK suffered massive losses to its national dairy herd following the Foot & Mouth outbreak of 2001, the country then rarely threatened to exceed its national quota so the threat of a levy was much reduced and the milk quota market became much quieter. As a result many agents stopped trading quota, however Townsend Chartered Surveyors were one of the few firms that kept trading until 2015.
Due to our long history of milk quota trading we have extensive experience and knowledge of the milk quota market going back to 1985, with detailed records of quota sales going back to 1992. As such we are able to offer a comprehensive and accurate service valuing quota for Inheritance or Capital Gains Tax purposes, partnership/matrimonial splits or landlord/tenant compensation calculations etc.
For our historical milk quota sales price graphs, please click to view/download below.
milk quota & tax
To summarise how the tax benefit works; if you have previously bought milk quota on your business account it will be showing as an asset with a value based on the original cost of acquisition (i.e. what you paid to buy it). The subsequent loss of Milk Quota has resulted in an allowable capital loss equivalent to the amount incurred (i.e. the “acquisition cost”) when the Milk Quota was acquired.This loss can then be used by your accountant to offset against any gain and reduce the amount of Capital Gains Tax you would be due to pay. Also if you are not able to use all of the capital loss in one tax year, you can carry forward the remaining capital loss to a later tax year. As stated on the HMRC website (https://www.hmrc.gov.uk/stats/capital_gains/cgt_b.htm ) under Capital Gains Tax, Section B point 5, “Capital losses may be deducted from gains chargeable in the year in which the losses are incurred or, if these are insufficient, the unused amount may be carried forward to be deducted from gains in later tax years.”
To see the most recent advice from the HMRC regarding milk quota and capital losses, please go to: https://www.gov.uk/government/publications/revenue-and-customs-brief-48-2014-making-a-negligible-value-claim-for-an-asset-affected-by-common-agricultural-policy-reform/revenue-and-customs-brief-48-2014-making-a-negligible-value-claim-for-an-asset-affected-by-common-agricultural-policy-reform#milk-quota .
We have to recommend you discuss any tax strategies with your accountant before you make a decision about this as we are not accountants. Different financial situations (such as if you have incorporated, or you are a partnership) will call for different approaches to the problem. For instance, if you have recently incorporated, or are planning to change your business structure this year, you may not be able to offset your losses in the same way.
If you have any queries about milk quota, please contact Julia Clark who has over fifteen years of milk quota experience.