Farmers' retirement lump sum in England - What do we know so far?
On 19 May 2021, the Government published a consultation document on the design of execution of the lump sum exit scheme, which would enable eligible retirees from the farming industry to take some of their remaining subsidy payments by way of a single lump sum in 2022. This proposal, first outlined in the “health and harmony” consultation over three years ago, is intended to facilitate agricultural transition (and improve productivity), taking “a view that structural change could be encouraged by less productive farmers leaving the sector”. The consultation also covers the delinking of direct payments from agricultural production for the rest of the industry from 2024.
The proposals are, of course, at this stage still a consultation, therefore there is no guarantee that they will all be reflected in the final scheme, but they certainly show the way that the Government is thinking, and they will link in with the progressive reductions in Direct Payments announced earlier this year. Some of the key points are:
- The lump sum scheme will be available as a one-off in 2022 and delinking will apply from 2024. The lump sum will be approximately the amount which the claimant would have received during the remainder of the transition period. It is likely to be capped at £100,000.
- All BPS (Basic Payment Scheme) entitlements held or leased by a lump sum applicant would be cancelled, and it would not be possible to make a partial application.
- The business receiving the lump sum would not be eligible for future Direct Payments, nor would it be able to enter Stewardship agreements or Sustainable Farming Incentive plans during the remainder of the transition period. This would also apply to the directors of a farming company and the partners in a partnership. An applicant could, however, be employed by, or work as a contractor to other farmers.
- Claimants would have to dispose of land which they own (either by sale, gift, or granting an FBT (Farm Business Tenancy) for at least five years) and surrender any tenancies. Generally, the scheme will only be open to those who were farming prior to 2015, although there will be special rules where land or a tenancy has recently been inherited.
- The payments due under both the lump sum scheme and the delinking will be based on BPS amounts received during a “reference period”, probably the average of the three years to 2020, although there is a suggestion that the reference period for the delinking payments could be an average of the five years to 2022.
- Where land is taken over from a retiring farmer, the acquirer will need to hold BPS entitlements in order to claim the remining BPS payments. The issue of new BPS entitlements under the new farmer and young farmer schemes will cease after 2022.
- For both schemes there will be transitional periods so that businesses which naturally restructure are not disadvantaged, but conversely, those which change structure to enhance their delinking or lump sum payments will not be permitted to do so.
- The potential tax treatment of both schemes remains somewhat vague – “Guidance…will be provided in due course”. Given the complexity which is added by linking the payment to the surrender of a capital asset (BPS entitlements), and indeed the disposal of other business assets, this is not helpful.
The consultation period runs up to 11 August 2021 (not ideal for those planning a harvest this year) and representations can be made online or on paper. The full consultation is available at https://consult.defra.gov.uk/agricultural-policy/lump-sum-and-delinked-payments-england/supporting_documents/lumpsumexitschemedelinkedpaymentsconsultation.pdf
If you’d like to discuss anything in more detail, please get in touch.
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