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

DEFRA Releases New Retirement Plans

On 19th May 2021, DEFRA released plans outlining how farmers who want to retire from the agricultural sector can take their future BPS payments upfront. These plans appear in DEFRA’s consultation, which closes at midnight on 11th August 2021. The rules that emerge from this proposal will be set out at the end of October 2021.

Eligibility for the 2022 Scheme

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

Encouraging New Entrants Into Farming

DEFRA aims to use the scheme to encourage new and younger applicants into the industry. As part of taking the lump sum, farmers will need to surrender their entitlements and sell or rent out their land. They will still be able to keep their dwelling and up to 5% of their agricultural land. Farmers who choose to rent out their land will need to offer it on a minimum five-year tenancy, as required by DEFRA.

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 meaningful opportunity, the released land must be prioritised for this purpose.

Lump Sum Value and Payment Limits

The scheme currently proposes a lump sum capped at £100,000. The payment would be set at 2.35 times the annual BPS amount received from 2018–2020. This would restrict eligibility for anyone receiving more than £42,500 in the reference year, which equates to claims of around 184 hectares.

Tax and Structural Considerations

There may be inheritance tax implications for owners of farmland. Restrictions may also apply to family partnerships and farming companies, as the proposal assumes that all partners and directors retire alongside the principal farmer. It would clearly help the scheme’s success if DEFRA relaxes some of these rules during the consultation.

Is the Scheme Enough to Support Retirement?

The scheme will not provide a full retirement package on its own. However, the lump sum, combined with the potential sale of livestock, machinery, and the surrender of AHA tenancies, will give many farmers approaching the end of their careers a genuine opportunity to retire.

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