Farmers do not retire but is this about to change?
In early March, DEFRA made a series of announcements regarding future support for English farmers. This included an update on the Lump Sum Exit Scheme with an incredibly significant decision by HMRC (HM Revenue and Customs), that receipts from the Lump Sum Exit Scheme will be treated as capital payments, not income. This will be a major consideration for any farmers considering the scheme.
There are still some parliamentary procedures to take place but there is enough information now available for farming families to start to weigh up the offer on the table. We know that to be eligible, a farm business must have been a Basic Payment Scheme (BPS) claimant in 2018. The reference period for the calculation of any payment will be 2019, 2020, and 2021. Taking the average underlying value of a BPS claim over those three years, capped at £42,500 will be multiplied by a factor of 2.35, an attempt to put a fair value of future payments forgone. This creates a maximum payment just shy of £100,000 (£99,875).
The core point of the scheme is that farmers are relinquishing farming land under arable crops, permanent and temporary grassland, and orchards and vineyards, in return for the lump sum payment.
However, a farmer taking the lump sum can still
- retain 5ha of farmland
- keep the farmhouse
- keep the farm buildings
- keep woodland
- keep residential and commercial properties
With the knowledge of the tax status of any payments received under the Lump Sum Exit Scheme, this creates a once in a lifetime to review the farming operation and look at the potential of a business. The range of possibilities is huge. To be able to remain living in the farmhouse will be a great relief for many. Is this the chance you have been looking for, to create a properly structured, tax-efficient, succession plan?
It is anticipated that the first payments under the Lump Sum Exit Scheme will be made in November 2022. FOLK2FOLK have already started providing short-term financial support to help farm businesses make the transition. For many farming families, quitting farming will be the biggest decision they ever make but it may be a far better outcome than farming through old age, in a subsidy-free world.
To talk to us call 01566 773296 or send us an email.
