Lump Sum Exit Scheme – Are you a Farmer Contemplating Retirement?

As details of the Basic Payment Lump Sum Exit Scheme have become clearer the thoughts of all farmers approaching retirement age continue to turn to ‘hanging up their wellingtons’. 

On February 8th 2022, guidance was published on the Lump Sum Exit Scheme and delinked payments, including how the payments will be calculated. 

What is The Lump Sum Exit Scheme?

The Lump Sum Exit Scheme will open in April 2022 and run until the 30th September 2022. More detail will be provided at this time including how businesses that have changed through merges and splits will be treated.  The scheme will not be competitive – and anyone who fulfils the criteria will be eligible for the payment. It is envisaged that the Lump Sum is only going to be available in 2022 – if not applied for this year the opportunity will be lost.  BPS claimants will be able to request a statement sitting out how much Lump Sum they are eligible for.

Lump Sum payments would be made in November 2022 or as soon as the requirements for the Scheme on land transfers have been met.

How Do I Qualify For The Lump Sum Exit Scheme?

In order to qualify for The Lump Sum Exit Scheme, applicants must have made a BPS claim in May 2018. There will be exceptions for those that have inherited a farm or succeeded to an AHA Tenancy since 2018 as well as rules on merges and splits of business between 2018 and now.

The payment will be based on the average BPS paid in the years 2019, 2020 and 2021 (the reference period). The 2021 figure will be before any agricultural transition deductions.  This average sets the “reference amount” and will be capped at £42,500 (this is equivalent to around 185 hectars or 460 acres). There will be a standard multiplier of 2.35 to arrive at the value of the lump sum, therefore the payment will be limited to £100,000.

If the applicant has already reduced their entitlements compared to the reference period, their Lump Sum is reduced proportionately.

It should be noted that anyone who receives the Lump Sum will no longer be able to apply for other agreements under pre-existing support schemes including SFI and CS.  The Lump Sum will need to be paid back if these schemes are entered into.

What Happens If I Apply For The Lump Sum Exit Scheme?

To apply for the scheme, applicants are required to relinquish control of their farmland.  They can keep residential and commercial property, non agricultural land and up to 5 hectares of agricultural land the land must be transferred is that which was held on the 17th May 2021.  If some of this has already been transferred the transfer meet scheme rules and the applicant has kept the entitlements this will be eligible for the Lump Sum payment.

The transfer of the land includes sale, granting a Tenancy (which must be more than 5 years) , gifting it or relinquishing a tenancy.  Where there is an AHA with succession rights, the transfer to a successor will be eligible for the scheme.

The applicant will have until the 31st March 2024 to complete their transfer (useful if notices have to be given on tenancies or sales negotiated).

Since the original proposal, Rules on Partnerships and Limited Companies have been made more flexible. Where partners or shareholders (either single or jointly) have at least a 50% interest in the business, they will still be able to apply for the Lump Sum.

Once the treatment of the Lump Sum payment has been clarified, legislation will be introduced to ensure that the payments are treated as capital rather than income. Therefore, they will be taxed under the Capital Gains Tax (or Corporation Tax for companies) and will be eligible for CGT release.  This treatment will also apply to any interim BPS payments claimed in 2022 and 2023 while the transfer of land is being dealt with.

As a result, urgent legal and accountancy advice is essential for any farmer (whether tenant or land owner) before entering into any decisions in relation to bringing a tenancy to an end or seeking closure on an existing business.

How To Decide What Is Best For You

The decision will be very personal and based on the individual circumstances of the business.

Matters which will require consideration are:

1. If the staff are employed, what are the implications for both staff and farmers?
2. If it is a tenanted farm, what is the Landlord’s attitude going to be? Some Landlord agents are seeing the Lump Sum Exit Scheme as an opportunity to seek to reduce any compensation payments for tenants improvements.
3. If this is a tenanted farm, what are the implications for a Landlord offering a tenant a suitable property into which to retire.

This is an appropriate time for all farmers who are approaching retirement age to take into consideration succession planning as a whole. This includes making Lasting Powers of Attorney and creating or updating their Wills. 

How Landlords Can Benefit From The Lump Sum Exit Scheme

It is not possible for any tenant to force the hand of the Landlord, but the surrender of a tenancy, particularly an Agricultural Holdings Act tenancy, may be very attractive to a Landlord:

• Their estate could claim 100% Agricultural Property Relief rather than 50%;
• They have the opportunity to re let at a higher rent;
• They could take the opportunity of amalgamating the land with an adjacent tenanted holding, (with suitable rent increase);
• They could sell or let out the farmhouse at a commercial rent;
• They could contemplate the conversion of the redundant farm buildings into additional accommodation to let or sell.

From the tenant’s perspective, consideration needs to be given to how much money they would receive from delinked BPS Payments. In certain cases this may work out to be more than through the Exit Scheme.

Butcher & Barlow LLP

Butcher & Barlow’s Agriculture and Rural Affairs team can advise on succession planning, agricultural property, and business matters, and will work with your financial advisor or accountant to ensure that you receive truly holistic advice. 

If you are considering applying for the Lump Sum Exit Scheme, it is essential that you seek legal advice at the earliest opportunity so we can help you navigate this field. Mike Bracegirdle, Partner of the Firm and head of the Agriculture and Rural Affairs Department would be more than happy to schedule an appointment with you. To get in touch with him, please call the office on  01606 334 309.