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Will the Lump Sum Exit Scheme be attractive to those looking to exit farming?

The Lump Sum Exit Scheme, also referred to as the “retirement scheme” has been created by the government in response to growing evidence that some farmers would like to retire or leave the industry but have found it difficult to do so for financial reasons. The scheme, which is open for applications until 30 September 2022, aims to help those who want to leave farming, to do so in a managed way, providing BPS claimants with the opportunity to take a capital payment.

The payment is to be the equivalent of 2.35 times the average BPS payment for 2019, 2020 & 2021, capped at £99,875 (an average BPS claim of £42,500). Initial calculations suggest that this will be marginally smaller than the sum of the annual payments received by claiming the reducing Basic Payment Scheme in 2022 and 2023, plus de-linked payments until 2027.

To secure this payment, claimants will have to surrender the entitlements that were available to them on 17th May 2021. The claimant can retain up to 5 hectares of agricultural land, woodland and the farmhouse/farm buildings, and any remaining land must be sold, gifted, planted with trees, or let for a minimum of 5 years. Claimants who farm tenanted land must surrender their lease or enable tenancy succession, where eligible.

Payments will begin from November 2022, or once the scheme rules have been met, and the deadline for transferring land and entitlements is 31st May 2024. Applicants can continue to claim BPS up to this point, however any BPS payments received will be deducted from the lump sum.  It is expected that the sum will be treated as capital and therefore subject to Capital Gains Tax.

Will it work for you?

For those who are already planning to retire/leave the industry, the Lump Sum Exit Scheme is another string on the bow and should be considered. Those who have already retired, but made a BPS claim in 2021 and still hold entitlements, can also utilise the scheme.

The scheme will be of most benefit for those claimants with no obvious successors, provided of course that tenants wishing to retire are not required to hand entitlements back to the landlord on termination of the tenancy.

For some the payment could generate a sum of money for the elder generation to invest in bricks and mortar away from the farm. A successor can still seek entitlements on the open market however their availability and capital value remains a risk for the 2023 scheme year given their diminishing value and the introduction of de-linked payments from 2024.

In terms of timing, it may not work, particularly for tenants whose tenancy can only be terminated after the Exit Scheme deadline in September 2022. Succession discussions can also be a lengthy process and therefore early discussions with advisors and landlords are key.

What does this mean for landlords?

For landlords or those that wish to retire and become a landlord, there must be careful consideration for taking land in hand or letting land as ‘naked acres’.

Claimants that take advantage of the scheme are required to surrender their entitlements and therefore entitlements are a diminishing product on the open market to reconnect to land for future use.   Although entitlements and direct payments are being phased out, they have still driven rents over the last couple of years. We wait to see how farm tenders are affected when entitlements are no longer available from as early as post May 2022.

Final thoughts

In practice, I believe there is not enough incentive to encourage those not already considering retirement, to leave the industry.  However, for all farming families, the announcement of the scheme should prompt succession discussions between generations, advisors, and landlords.

Should you wish to discuss any of the matters raised in this article, please do not hesitate to contact us.

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