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Farmers’ (BPS) ‘outgoers’ arrangements

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In May 2021, it was announced that, as part of the farm subsidy restructuring process, a scheme would be introduced to encourage change within the sector by way of a lump sum on retirement. The proposal was not received with great enthusiasm, and many commentators focussed on the lack of clarity on family situations, and a complete silence on the tax consequences.

A consultation ran from May to August 2021, with results being published at the same time as revised proposals. Perhaps unsurprisingly about two-thirds of respondents felt that the proposals outlined would only benefit a small or very limited number of farmers with the remaining third split fairly evenly between those who believed many farmers would benefit and those who felt that exits should not be encouraged at all.

It would appear that at least some of these concerns have been taken on board in the second draft proposals issued on 8 February 2022. Whilst the general thrust of the scheme is unchanged, eligibility will now be given to those claiming BPS in 2018 or earlier, and they will need to meet the retirement conditions by 31 May 2024. Any BPS monies received in 2022 and 2023 will effectively be deemed part of their retirement lump sum.

There are detailed provisions on the interaction with other schemes, such as countryside stewardship and woodland creation, and claimants will be permitted to retain buildings and up to 5 Ha of land.

Both the retirement lump sum and the ongoing “delinked payments” for those continuing to farm after 2024 will be determined on the BPS payments received in a “reference period” – for retirees this will be the three years to 2021, and the payment will be 235% of the average profits, capped at £42,500 p.a. For delinked payments, the reference period will be the three years to 2022.

Further new points of detail are, however, far more welcome. Firstly, it is now confirmed that partnerships and limited companies will be able to apply for a lump sum payment where one or more controlling partners or shareholders (entitled to over 50% of profits) leaves the business and disposes of their agricultural land (or exits leaving partnership land with other partners). This will need to be done as part of an agreed restructuring exercise, since all the business BPS entitlements must be surrendered, future BPS or delinked payments to the business will be blocked and no further BPS claim can be made by the continuing business.

The second and even more significant point is that the importance of the tax treatment of the lump sum has been recognised. Although the delinked payments for continuing businesses will still be treated as income, the lump sum payment will be subject to Capital Gains Tax (CGT) legislation and “The existing capital gains reliefs will be available where the qualifying criteria are met”. This means that many retirees will be able to utilise the annual exemption and also to claim business asset disposal relief, reducing the effective charge to below 10%; (partnerships and companies will be more complicated). For those who purchased or inherited entitlements, there may also be a deductible base cost whilst others may have or be able to crystallise relievable CGT losses elsewhere.

The availability of CGT treatment may well change how the outgoers scheme is perceived. Since the lump sum is broadly the same amount as the foregone income payments, it was originally feared that taking it would potentially trigger higher rate income tax liability. Under the new proposals, the tax cost of the lump sum will normally be significantly lower than the tax on the delinked payment stream. However, each case will be different, and detailed advice will be required (particularly where there are income tax or CGT losses available).

As always, one should never let ”the tax tail wag the business dog” but where a retirement is at least in prospect, there is now a 27-month window to consider using these proposals as part of a succession plan. Full details are available here.

If you’d like to discuss the outgoers scheme in more detail, please get in touch with your usual Larking Gowen contact or email

Steve Rudd


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Larking Gowen


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