Are you looking to retire from agriculture or exit farming to pursue an alternative career? If so, the Lump Sum exit scheme may be of interest to you.
In 2021 the government started a 7 year transition away from direct payments (currently paid through BPS), as part of this transition they announced the Lump Sum Exit Scheme & Delinked payments for BPS applicants who wish to leave farming, either to retire or to take up another occupation.
Defra believes that current direct payments hold back structural change and inflate farm rent prices. It believes this scheme makes it more financially viable for farmers to leave the industry, thus increasing opportunities for those wishing to enter the industry or those wishing to expand their farming activity.
So if you are looking to leave the industry and currently claim basic payment scheme subsidies this scheme may provide an income incentive for you. Obviously, there are certain criteria you have to meet however you may be eligible to receive a sum of up to £100,000.
How does it work?
The scheme will require applicants to transfer out the land in England that was at their disposal, eligible & claimed BPS payments on in 2018 year, before you receive the lump sum payment you must surrender any English BPS entitlements. Applicants are able to keep up to 5 Hectares and retain any land they have planted trees under certain woodland creation scheme. Applicants must surrender their English BPS entitlements in order to claim the lump sum scheme.
The lump sum application window will run from April to September 2022, payments will be calculated by reference to the average BPS payment received in 2019 to 2021 multiplied by 2.35, with a total payment cap of £100,000. This means that anyone with a BPS claim of less than £42,500/year during the reference period will not be affected by the cap.
Farmers are being advised to apply for BPS in 2022, even if they are applying for the lumps sum scheme. This will offer protection if they find that they are not eligible for the scheme or cannot transfer the land in time.
The final deadline for transferring land and surrendering BPS entitlements is 31st May 2024.
If your business is a partnership or limited company, you need to apply to the Lump Sum Exit Scheme as a partnership or limited company, as you do for BPS.
If some members want to leave or retire from farming, such as parents leaving the business to their children, the partnership or limited company can still apply for a lump sum payment if:
a partner with 50% or more interest in the profits of the partnership, or more than one partner with combined interest of 50% or more, leaves the partnership
a shareholder with 50% or more equity share capital in the company, or more than one shareholder with combined shares of 50% or more, sells or gifts their shares
the partners or shareholders who leave the business transfer the agricultural land used by that business if it was held, or partly held, in their name
The partners or shareholders who are leaving can transfer the land to the remaining members of the business. For example, if a tenancy was previously in the name of more than one partner, the tenancy needs to be changed to remove the partner(s) leaving the business. A land transfer is not needed if the agricultural land is not held in the name, or partly in the name of the partners or shareholders leaving the business.
How will the payments be treated by HMRC?
One of the critical questions that many people had during the consultation period was how lump sum payments might be taxed. Defra has confirmed that it intends to introduce legislation so the 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.
This means existing capital gains reliefs will be available where the qualifying criteria are met.
Here at Brightshire Accountants, we are able to advise on your tax position, please do get in touch on 01270 335030 if you require any further information.
In summary, this scheme provides a paid exit from farming for those wishing to retire, transfer land or move away from the industry to explore other careers. This option will not work for all and we are able to advise on how this will affect your business, please do get in touch to discuss the details further.
This blog is for information only, please do seek legal and professional advice if you are considering leaving farming via the Exit scheme.
DEFRA announced the Lump Sum Exit Scheme & Delinked payments for BPS applicants who wish to leave farming, either to retire or to take up another occupation. ”