Firstly, it’s important to understand that payments are calculated using a minimum rent fee which is a flat rate, then there is the turnover rent, which is based on energy output and activity.
It’s expected that inflation will go up at some point in the year which will mean rent payments are likely to be static. The normal expectation is that rent payments go up by about five percent with inflation, but if there is an increase, the most likely scenario is that payments will freeze, and for those who do see an increase, it’ll only be by a percent or two. This is because the minimum rent payment is linked to inflation and increases at a slower rate when interest rates rise, and turnover rent is affected by energy prices which would go down, so the money being made from the energy source would be less.
Brexit could actually have a positive effect on both rent payments, especially if we get a hard Brexit. As the value of the pound decreases and the price of imports increase, the cost of electricity will see a hike, as will the cost of living which will in turn affect inflation and minimum rents.
We currently import electricity from the Internal Energy Market and once our relationship with the EU changes, this may need to be renegotiated. We could find ourselves in a position where there is more demand in the UK for wind energy and electricity, which will increase turnover rents
Based on the 2017 Autumn Budget announcement farmers will keep more of their money in the new tax year. The Personal Allowance will go up by £350, while the basic rate of income tax goes up by £1,000 to £34,500. In addition, self-employed workers who pay Class Four National Insurance will be able to keep £1,350 more of their money before falling into the higher earnings threshold.
Here’s an example of how the budget might affect farmers:
A farmer whose wind farm produces £11,850* will get an extra £88.20**:
– This year they keep £11,300.06.
– Next year they keep £11,388.26.
A farmer whose wind farm produces £46,350* will get an extra £263.70**:
– This year they keep £35,619.50.
– Next year they keep £35,883.26.
It’s hard to assess what these factors combined will mean for land owners, but given that rent payments increase annually, landowners will be affected in some way at different times. Ensuring you are receiving accurate returns from your renewables investment can be a challenge as it is – we identify underpayments in 75% of our royal audit reviews – and this coupled with the any of the above factors can add another level of inaccuracy. If your rent payments contracts are due for review soon it's worth considering whether you can renegotiate a better deal.
* Assumes no other income. Applies to those who are self-employed but not in receipt of married or blind persons allowance.
** These figures are estimates, contact AfE to find out how you are affected.
To check whether your land rent payments are accurate, get in touch with our specialists auditors today.