Do they not do phase teaching? Our dss' school covers the same topics over Years 1 and 2, which enables children to be grouped for literacy, maths, phonics, etc in mixed Year 1 and Year 2 groups. They stay with their own class for other things. The same thing then happens between years 3 and 4 and between years 5 and 6. I'm waiting to see what happens to the brighter children when they are at the top of a phase rather than in the younger year of the phase group... Maybe this wouldn't work so well in a small school, though, where there might only be one child who ever needs to mix with the year above or the year below!
Definitely clarify what the school is hoping to happen in future years. My dh was put in a class of children a couple of years older than him and then spent two years in the top year of the school (rather enjoyed it, though, I think, as it was an academic school, so probably provided him with continuing challenges). Unfortunately, though, he was hopeless at sport, and being mixed with physically stronger and more developed children for sport did no good whatsoever for his sporting confidence. My father also had the same thing - in his day, children like this ended up being used as mini teachers and tea makers (which, likewise, I think he rather enjoyed and, on the teaching side, helped him develop new skills and understanding, but I don't think this use of a child would actually be permitted these days!). In general, I would favour a child being kept with their year group and challenged within that group if possible (the alternative is just easier for the teachers), but you have to work with the school you've got, I guess.