Lump Sum Exit Scheme And De-Linking of Basic Payment – DEFRA Consultation

DEFRA has issued its Lump Sum and Delinked Payments Consultation for the Basic Payment (BPS). The deadline is 11th August with DEFRA’s intention being to respond in early October. These will be joined by new entrant support, with details of that yet to be set out. All the proposals below are subject to the consultation and so might be changed.

The Lump Sum Exit Scheme proposals

• consolidate the remaining possible BPS claims from 2022 to 2027
• cancel the claimants’ entitlements
• require the claimants to retire from farming in their own right
• land to be sold or leased to others or surrendered to the landlord
• open for applications in the first half of 2022

Key issues include eligibility based on current status and past claims; amount of the payment, subject to a cap, and how it will be taxed; extent and timescale of the requirement to retire from farming and potential complications arising from these.

Eligibility

• those who made a valid BPS claim in 2015 (exceptions for inheritance or AHA 1986 tenancy successions)

Amount of Payment

• the average payments across the three-year period of 2018 to 2020.
• multiplied by 2.35 for the remaining (reducing) payments to 2027
• subject to a cap of £100,000 (equating to an average payment of £42,500 in 2018-2020)
• if a claimant has fewer entitlements than in the reference period, proposal to scale back the amount proportionately
• if 2022 BPS is claimed and paid, that would be deducted from the lump sum
• DEFRA is in discussion with HMRC over how the payment will be treated for tax

Retirement Requirement proposals

• the BPS claimant has to retire (so all partners in a partnership or Company Directors, even if the land is owned or rented by only one partner/Director)
• an owner occupier must sell or gift the land or lease it out for at least 5 years (could be to a family member but not one who has been a principal in the business)
• a tenant must give up the tenancy (potentially requiring negotiation with the landlord. An AHA succession is acceptable if the successor is not a principal in the business)
• rights of common must also be sold, gifted or leased
• the farmhouse can be retained and the lesser of 5 per cent of their land or 5 hectares
• non-agricultural land (eg woodland) can be retained
• the claimant would be able to work for other farmers or be a contractor
• DEFRA will confirm the earliest date for land transfers to be relevant and is consulting on the date by which a disposal must be made: 12/18/24 months are being considered

Potential complications

• the timetabling for the transactions could be difficult, whether to sell land or for a tenant to surrender a tenancy
• this will be more difficult where a claimant holds land on a variety of arrangements, especially a fixed term FBT
• the timings of disposals involved in exiting the business and the receipt of the payment if is to qualify for “Entrepreneurs’ Relief” from Capital Gains Tax
• managing commitments under agri-environment agreements will need to be discussed with a landlord or any subsequent occupier
• the agreement could be transferred to the new occupier or be subject to penalties if abandoned but this will need further consideration where there are joint agreements, eg on Commons.
• where entitlements that would be cancelled have been transferred to the claimant to hold on trust – the claimant might be accountable to the transferor for them
• where entitlements that were leased in would be cancelled with the claimant’s other entitlements – the claimant might be accountable to the lessor for them
• the whole lump sum would have to be repaid were the claimant to enter Countryside Stewardship or any new schemes eg ELMS before 2028

Future Occupation and Use of the Land

• the new occupier, whether an existing farmer or new entrant, is free to farm the land
• the new occupier can use the land to claim BPS in 2023 (before delinking in 2024) but would need to have or buy entitlements (any that were bought at that point might not qualify for the delinked payment)
• the consultation states that no entitlements will be offered to new entrants or young farmers in 2022
• the new occupier would be able to enter all other new schemes as appropriate

 De-linking of Basic Payment

• in 2024, ‘delink’ Basic Payment from the land for all farmers
• recipients will no longer have to farm land to receive the payments
• entitlements would just go
• payments would continue to be reduced over the period 2024 to 2027
• based on a prior reference period: 2018-20/2018-22/2022 are being considered
• must still be farming in 2023

Key issues include no access for those starting farming after the reference period; concerns where a business has changed structure since that period; eligibility will be lost if the claimant ceases farming before 2024; – taxation issues if this payment is not seen as farming income and subsequent transferability of the payment eg on death.

These schemes could provide a valuable source of income but will need careful planning and consideration. The requirements proposed for the Lump Sum make it less likely to incentivise retirement for those not already considering it, but nothing is certain until details are confirmed in the Autumn. For advice on your specific situation, please get in touch with our Agricultural Team at Lister Haigh on 01423 860322.