Farmers’ lump sum retirement scheme – more detail, but what about the tax?

The broad outline of a scheme to help farmers retire has been public for some time now, having originally been raised in February 2018 as part of the “health and Harmony” initiative. On 20^th May 2021, a further document was released by DEFRA setting out more detail. Clearly this is still at the consultation stage, but it now gives a clear view of how the scheme will shape up. It also gives some insight into the operation of the delinked payments, which will cover the second part of the seven-year agricultural transition period.

The amount of both the lump sum and the delinked payments will be determined as a multiple of the BPS payments received during a “reference period” of between three and five years, probably up to 2020, or 2022 in the case of the delinked payments. Effectively the lump sum will be the aggregate of amounts which the claimant would have received over the remainder of the of the agricultural transition period (as reduced in line with the table set out earlier this year) and will be capped at £100,000. The lump sum will only be available in 2022, and the delinked payments will run from 2024. Partial claims for the lump sum will not be permitted.

In order to receive the lump sum, an applicant must have been farming prior to 2015, and will need to dispose of land which they own (either by gift, sale or by letting it on an FBT of at least five years). All their BPS entitlements will be cancelled, and their business would no longer be eligible for Direct Payments. It would also no longer be able to enter Stewardship or Sustainable Farming Incentive schemes. This prohibition would extend to partners in a partnership or directors of a company where a lump sum claim has been made.

Those who take on the land given up will need to acquire BPS entitlements to receive the remaining BPS payments, and from 2022 will no longer be able to do so through the new farmer or young farmer schemes. Transitional arrangements will apply for genuine business reconstruction, but anti avoidance provisions will exclude those which restructure purely to secure a better outcome from the new arrangements.

Perhaps the most surprising omission from the consultation is the key issue of tax treatment. Both the sections on lump sums and delinked payments merely say the details of the tax treatment “will follow in due course”. The fact that BPS entitlements will need to be surrendered complicates the matter considerably. Normally a government grant for income support would be subject to income tax, but to the extent that a capital asset must be surrendered to claim, implies that at least part of the lump sum will have a capital element. The amounts involved will not be massive (it is suggested that an average lump sum may be £50,000, but one suspects that those taking the retirement option may be those farming holdings well below average size) so the tax treatment may be critical in determining take up.

Responses on the consultation are requested prior to 11^th August and can be made on paper or online. The full details are available click here.

Given the fact that the consultation period runs into harvest, it is suggested that this is not something which should be left until the last minute.

To discuss this further, please contact Andrew.