LUMP SUM EXIT SCHEME - SHOULD I STAY OR SHOULD I GO NOW?

Lump Sum Exit Scheme – Should I Stay or Should I go Now?

Edward Hutley

Edward Hutley

May, 24 2021

On the 19th May 2021, DEFRA released plans detailing how farmers wishing to retire from the agricultural sector may take their future BPS payments upfront.  These plans are laid out in DEFRA’s consultation due to close at midnight on the 11th August 2021.  The rules derived from this proposal will then be set out at the end of October 2021. 

Farmers will be eligible to opt for this scheme in 2022. Although the current consultation suggests participants must have been claiming BPS since 2015, exemptions may be given for those who have inherited or succeeded an agricultural tenancy more recently. 

DEFRA want the scheme to encourage new/younger applicants into the industry.  Therefore, as part of taking the lump sum farmers will be required to surrender their entitlements and sell or rent out their land.  Though they will be able to keep their dwelling and up to 5% of their agricultural land.  Farmers who opt to rent out their land will be required by DEFRA to offer it on a minimum 5-year tenancy. 

Many young farmers will still lack the capital needed to gain a foothold in the market.  For the lump exit scheme to give new entrants a chance, the land released must be prioritised towards this purpose.  

Currently the scheme suggests the lump sum will be capped at £100,000.  With the payment set at 2.35 times the annual BPS amount received from 2018-2020. This would restrict anyone receiving payments of more than £42,500 in the reference year (equating to claims of circa 184Ha).  

There may be inheritance tax implications for owners of farmland, and also restrictions for family partnerships and farming companies, where the proposal assumes all parties and directors retire with the principal farmer.  It would obviously help the success of this scheme if some of the proposed rules are relaxed during the consultation. 

The scheme itself will not provide the full package for farmers looking to retire.  Although this capital coupled with the potential sale of livestock, machinery and surrender of AHA tenancies will give the opportunity of retirement to those reaching the end of their farming career. 

If you wish to discuss further, please contact us. 

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