Reasons to choose Wilson Browne
On 8 February 2022, the government published guidance on the lump sum exit scheme and delinked payments following a consultation held in 2021. The guidance includes how the payments will be calculated.
As part of the agricultural transition to the new agriculture policy in England the government announced on 30 November 2020 that they planned to:
- In 2022, offer farmers who wish to exit the industry the option of taking a lump sum payment in place of any further Direct Payments.
- In 2024, “delink” Direct Payments from the land for all farmers. This means that recipients will no longer have to farm the land to receive the payment.
The scheme is for Basic Payment Scheme (BPS) applicants in England who wish to leave farming, either to retire or take up a different occupation.
The government have published guidance on how payments under the scheme will work, having taken on board the views expressed in the consultation.
The Lump sum exit scheme is for BPS applicants in England who wish to leave farming, either to retire or take up a different occupation. Applicants must have either:
- Claimed, and been eligible for Basic Payment Scheme (BPS) payments in the 2018 scheme year or in an earlier scheme year.
- Inherited agricultural land in England, or succeeded to an Agricultural Holdings Act 1986 tenancy, after 15 May 2018.
Before receiving the lump sum payment the claimant must have met all of the following conditions by 31 May 2024:
- Transferred any agricultural land at the applicants disposal as of 17 May 2021 in England (apart from up to 5 hectares which can be kept) or alternatively planted up agricultural land with trees under a woodland creation scheme (such as the Nature for Climate Fund woodland creation scheme and the Woodland Carbon Guarantee Scheme).
- Transferred any grazing and pannage rights on common land in England.
- Surrendered all English BPS entitlements to the Rural Payments Agency.
For this scheme, “agricultural land” means arable land (including temporary grassland and fallow land), permanent grassland or permanent crops. It does not include land used mainly for a non-agricultural activity on 17 May 2021, which made it ineligible for BPS.
Applicants do not need to transfer any land which is woodland on 17 May 2021 as woodland is not agricultural land. Farm buildings, including farmhouses, do not need to be transferred and may be kept, used or occupied by the applicant.
Owner-occupiers of land must transfer the agricultural land by sale, gift or renting out under a farm business tenancy for a minimum term of 5 years.
Tenants must transfer agricultural land by:
- Surrendering the tenancy to the landlord or ending the tenancy having served a Notice to Quit on the landlord.
- Assigning the tenancy (transferring it to someone else) if the tenancy allows this.
- A succession, if an Agricultural Holdings Act 1986 tenancy with succession rights.
If land has already transferred since 17 May 2021, it may be possible to apply for a lump sum.
Further guidance on how to surrender BPS entitlements will be published before the scheme opens in April 2022.
Members of a partnership or limited company who want to leave or retire from farming, such as parents leaving the business to their children, the partnership or limited company can apply for a lump sum payment in certain circumstances but this will affect the ability for the remaining business to claim BPs payments or delinked payments in England.
The consequences of receiving a lump sum payment are:
- Applicants who receive a lump sum payment are not eligible for more BPS payments or delinked payments in England. However, receiving a lump sum will not prevent a claim for BPS payments or delinked payments in relation to other businesses.
- Meeting the Lump Sum Exit Scheme rules and leaving farming may mean that the rules of other scheme agreements and grants such as Countryside Stewardship (CS) or the Farming Investment Fund are no longer met. In some cases, money may need to be repaid. There will also no longer be eligibility to enter into new agreements (or add land to existing agreements) under, for example, the Sustainable Farming Incentive, unless the lump sum is repaid.
The guidance gives details of the basic calculation for the lump sum payment and contains some useful working examples. The maximum payment will be £99,875.00.
As to the tax treatment of payments received under the scheme, the government has stated that it intends to introduce legislation to provide clarity that the Lump Sum Exit Scheme payments will be treated as capital in nature and will be subject to capital gains tax, or corporation tax in the case of incorporated entities.
The existing capital gains reliefs will be available where the qualifying criteria are met.
The timetable for lump sum payments is:
- February 2022: forecast statements can be requested.
- April 2022: deadline for BPS 2022 applications. Some applicants may wish to apply for a lump payment and BPS in case they are not eligible for the lump sum payment or are unable to meet the conditions by 31 May 2024.
- 30 September 2022: deadline for lump sum applications.
- November 2022: payments will begin to be made.
- 31 May 2024: deadline for meeting the conditions for the lump sum payment (for example, transfer of agricultural land).
The government plans to replace BPS in England with delinked payments in 2024. When payments are delinked the claimant will not need any land or entitlements to receive payments. BPS will end after the 2023 scheme year and delinked payments will be made in each of the years from 2024 to 2027.
Where a business is in receipt of a delinked payment, these will continue to be taxed in line with ongoing BPS payments and be income in nature.