The government has announced a new scheme that will provide a lump sum payment for farmers who wish to leave the industry in England.
The exit scheme is part of reforms set out in the Agricultural Transition Plan, which details steps for a new system of farming support following our exit from the EU Common Agricultural Policy.
In return for their exit payment, farmers will surrender their entitlements and be expected to rent or sell their land, or surrender their tenancy, to create opportunities for new entrants and farmers wishing to expand their businesses.
The government has also been working with industry leaders, local councils and landowners to design a New Entrants scheme for new farmers.
Lump Sum Exit Scheme
The Lump Sum Exit Scheme is due to open for applications in April, and the application period will run until the end of September. The payment will be based on the average direct payments made to the farmer for the 2019 to 2021 Basic Payment Scheme (BPS) years. This reference figure will be capped at £42,500 and multiplied by 2.35 to calculate the lump sum, meaning that farmers could receive up to around £100,000.
Owner-occupiers will be able to retain their residential or commercial property, non-agricultural land and up to 5ha of their farmland. Recipients will have to repay the lump sum if they enter into the Sustainable Farming Incentive scheme or the agriculture-related options in Countryside Stewardship and Local Nature Recovery.
Applications will open later in 2022. Payments will be made from November 2022, and applicants have until 31 May 2024 to claim.
The CLA has been working closely with Defra for several years to input into the development of this scheme and the three Environmental Land Management schemes.
We welcome the news that the payments will be taxed as a capital receipt and that capital gains reliefs will be available where the qualifying criteria are met. This will help potential applicants assess whether the scheme is the right option for them.
If applicants for the lump sum make a protective claim for BPS to ensure there are no interim cash flow difficulties, while going through the exit process, this will also be taxed as a capital receipt, in effect as a part payment of the lump sum.
Additionally, as a result of CLA lobbying, the government has changed its position on partnerships and farming companies to allow a single partner or combination of partners with at least 50% share of the partnership to take the lump sum and exit the industry, but still allow remaining partners to take over the business, albeit without the BPS entitlements. So, for example, older partners (often the parents) could retire and take the exit payment while the remaining partners, usually the children, will be able to continue to farm and enter into environmental schemes .
Country Land and Business (CLA) President Mark Tufnell says: “Farmers build a long-standing connection with their land. Stepping aside and leaving the industry can therefore be extremely difficult, despite pressure on profits and changing demands on how land is used.
“The government’s announcement about the new Lump Sum Exit Scheme is therefore welcomed, giving farmers up and the down the country an option to leave farming in a planned way with greater financial security. It won’t be right for everyone, and we are not expecting high uptake, but it will contribute to opening up opportunities for the next generation and new entrants to take up the reigns. This will bring new ideas and innovation to the sector to meet the future challenges for sustainable farming and environmental delivery.
“The CLA has had some important influence on the development of the scheme, and are pleased that the government has changed its position on what began as an unattractive proposition. It is now open to a wider range of businesses with a clearly stated tax position. The inclusion of partnerships and companies will facilitate restructuring within these businesses allowing the next generation to take over, supporting the high proportion which operate as family partnerships.”
Members are advised to contact their regional office to discuss the detail of this new scheme.