Exit payments for farmers: Succession planning and Retirement implications
Hidden within the Agriculture Act 2020 were provisions for the creation of regulations enabling the payment of a lump sum exit payment to Farmers in England in lieu of them collecting their remaining Basic Payment Scheme (BPS) support. In our latest article, head of our Agriculture Department, Mike Bracegirdle, takes a look at the prospect of these potential exit payments and the problems farmers might face when trying to claim them.
The BPS support will be phased out by 2028 to be replaced with the Environmental Land Management scheme, a move from direct payments to paying farmers to improve the environment, improve animal health and welfare and reduce carbon emissions. Some farmers are reluctant or unable to transition on to this new scheme and thus the new lump sum payment is intended to incentivise early retirement.
Few known details
A DEFRA consultation is due this year which will provide some useful information for farmers to begin thinking about whether the scheme is right for them.
For now, few details on the scheme are known, although it is relatively certain that payment will be tied to a requirement to leave the farming industry, the scheme to be open for applications next year, and the window for applications be limited to perhaps a year. However, the requirement to leave the industry is fraught with issues.
Leaving the industry
Farm businesses are structured in different ways. Since the basic payments are usually applied for in the business name, does the business need to be wound up to qualify for the exit scheme? May the scheme just be limited to sole traders and partnerships in which all the Partners are retiring?
Time is of the essence. Succession planning may need to be accelerated, for example, to allow time for legal transfer of land to take place before the application window closes.
If there is a requirement to sell stock and equipment, doing this in an organised manner and achieving the best price can take many months of planning.
Yet, until such time as the details are fully known, it is probably not practical, nor recommended, to start winding up the businesses, particular as the tax treatment of the lump sum payments is also not known.
The Tenant Farmers Association(TFA) is paying close attention to the scheme, hoping it is a catalyst for change. TFA chief executive, George Dunn, said: “We are not expecting the scheme to deliver enough in itself to provide a full retirement benefit. However, taken as part of a portfolio, it could be an extremely important catalyst to encourage people to retire. For tenant farmers that portfolio could include a payment from the landlord for a tenancy surrender, compensation for tenants’ improvements to holdings, sale of live and dead stock and other available pensions.”
Negotiating exits from farm tenancies can be a lengthy and complicated process. Tenancy agreements need to be looked at sooner rather than later and a plan, or plans, of action must be established for when further details of the scheme are released.
Butcher & Barlow LLP Can Help
These developments make it more important than ever to talk about succession planning, whether that is in terms of the business, tenancies, land ownership or estate management. If you are a farmer contemplating retirement, you should be taking legal and tax advice now to ensure that you have a robust succession plan in place.
For advice on both succession plans and tenancy agreements, our agriculture department is on hand to ensure you are in a state of legal preparedness. With specialist private client and property lawyers, you can be sure of well-rounded, tailored advice. To get in touch with our agriculture department, please contact them on 01606 334 309, or email Mike directly at firstname.lastname@example.org.