Rural: Lump Sum Exit Scheme – Update

Lump Sum Exit Scheme – Update

Yesterday, 8 February we received an update from Defra in relation to the Lump Sum Exit Scheme following their consultation on this last year.

Defra have published a ‘summary of responses and government response’ document which can be found here.

Our rural teams take a look at what this means to anyone contemplating retirement from farming.

Lump Sum Exit Scheme

This scheme is intended to be introduced in April 2022 to help farmers exit the industry in a managed way. This will create opportunities for new entrants and farmers and the government are currently working on a New Entrant Scheme.

Eligibility

In order to claim the lump sum, you must surrender your BPS entitlements and will not be able to claim any further direct payments.

Following consultation views, they plan to be more flexible with their approach to partnerships and limited companies than originally suggested. They recognise that only some partners or shareholders with to exit farming.

You must surrender all but 5 ha of the land you currently farm either by selling, gifting, letting out on an FBT for a minimum of 5 years, planting it with woodland funded by a grant scheme eg. EWCO, surrendering any agricultural tenancy or retiring from an AHA tenancy. The land which must be transferred out is the land you held on 17 May 2021.

You will still be eligible if you surrendered land before you apply but you may need to have occupied some agricultural land on 17th May 2021, you do not need to have submitted a claim but must have claimed BPS in at least one year of the reference period as well as years prior to 2019.

To claim the lump sum payment, you must have submitted a BPS claim in 2018 or earlier.

The farmhouse, farm buildings and non-agricultural land (hardstanding, existing woodland etc) do not need to be given up.

With regards to common land, all grazing rights must be given up.

Payments

The value of the retirement lump sum will be 2.35 times your average claim value (before any penalties) in a reference period, this will be the BPS 2019 to 2021 scheme years. The 2021 payment will not factor in the tapered BPS reductions.

There will be a cap of £42,500 on the lump sum reference amount, before multiplying it by 2.35 to give the value of the lump sum, therefore no farmer will receive more than £100,000.

For example, if the farmers reference amount is £25,000 (their average claim from 2019-2021) their lump sum payment would be £25,000 multiplied by 2.35 equals £58,750.

The lump sum payment will be made once your entitlements have been surrendered and the RPA are satisfied you no longer occupy more than 5ha land.

Application Window

It is expected that farmers will be able to apply from April 2022 to 30th September 2022.

Additional information

The government intends to introduce legislation to provide clarity that the Lump Sum Exit Scheme payments will be treated as capital in nature and will be subject to capital gains tax, or corporation tax in the case of incorporated entities. The existing capital gains reliefs will be available where the qualifying criteria are met.

Harry Morshead, Associate, Rural Chartered Surveyor based in our Hexham Mart office adds; “In addition the “Lump Sum” payment may have other knock on tax ramifications and these should be considered fully before decisions are taken. One such example is Inheritance tax, aside from the release of taxable monies from the sale of stock or land, there is also the question of the farmhouse and how it’s value would be treated in the event of a death. For example if you’ve retired and “given” up your land, be it to rent out to sell, save for the allowable 5ha; would the farmhouse still be treated as a farmhouse, would it be “character appropriate” and would it therefore attract IHT relief. Although each case would be individually specific the immediate thoughts are that it would not. It is therefore imperative that any decisions taken on the Lump Sum Exit payment are taken in a wider context than the immediate monies available and professional advice is taken.”

The ultimate deadline for retirement is 31st May 2024, this is when the land sale/ tenancy etc must be completed.

In order to start considering this the first step is to obtain a ‘forecast statement’ from the RPA. Please get in touch if you would like us to assist in obtaining this or if you would like to discuss the scheme further.

Contact your local rural experts on:

Alnwick | 01665 606 800

Hexham | 01434 608980

Hexham Mart | 01434 609 000

Sedgefield | 01740 622 100

Northallerton | 01609 781 234