16.2.2022 – Western Morning News – Lump sum exit payments will require careful consideration

21st February 2022

Details have now been announced of the Lump Sum Exit Scheme (aka the “Retirement Lump Sum”), and the Delinkage payment.

Retirement Lump Sum Exit Scheme

In a nutshell, this scheme offers a payment of up to £99,875 to farmers surrendering control of their farm businesses.

1. The value of the payment will be calculated from a reference period, which will be 2019-2021.
2. The Retirement Lump Sum claim will be 2.35 times the average value of your claims in these three years.
3. The Lump Sum is capped at £99,875. This means that if your average claim value during the reference period is above £42,500, it will be treated as £42,500 for calculation purposes.
4. Therefore, if you claimed £10,000 each in 2019, 2020 and 2021, your Retirement Lump Sum payment will be £23,500. If you claimed £9,000 in 2019, £10,000 in 2020 and £11,000 in 2021, it would also be £23,500. If you claimed £10,000 in 2020 and 2021 but did not claim in 2019, your payment would be £15,667.
5. 2021 claims do not factor in the tapered BPS reductions which began the same year. However, any reductions for overclaims, cross compliance breaches, greening penalties etc will be factored into the calculation for all years.
6. To claim the Lump Sum, you must surrender all of your entitlements. If you surrender fewer entitlements than were used in your most recent claim within the reference period, your Lump Sum claim will be reduced. Therefore, it may be worth buying extra entitlements if you do not currently have enough to meet this requirement, i.e. you will not maximise your claim unless you surrender as many or more entitlements than were used in your most recent claim in the reference period.
7. To claim the Lump Sum, you must surrender all but 5ha of the land you currently farm. This can mean selling/giving it away, letting it out on an FBT for 5 years or more, planting it with woodland funded by a grant scheme such as EWCO, surrendering any agricultural tenancy, or retiring from a tenancy under the Agricultural Holdings Act 1986. We await the RPA’s evidence requirements in respect to unwritten agreements and grazing and cropping arrangements.
8. You could have surrendered land before you apply for the Exit Scheme, and before today’s date, but you may need to have occupied at least some agricultural land on the 17^th May 2021 (although you do not need to have submitted a claim in 2021). It is unclear whether you could claim the Lump Sum if you surrendered all (or all but 5ha or less) of your land before the 17^th May 2021. At a minimum, you must at least have claimed in one year of the reference period (so 2019 at the earliest) as well as in 2018 or before.
9. Farm buildings, “non-agricultural land” by the RPA definition (so concrete, hard standing, existing woodland etc), and farmhouses do not need to be given up.
10. To claim the Lump Sum, you must have submitted a BPS claim in 2018 or earlier, unless you either inherited the land you farm or succeeded to it via the succession provisions of the Agricultural Holdings Act 1986 after the 15^th May 2018.
11. All rights of grazing and pannage over commons must also have been transferred away.
12. On claiming the Lump Sum, you will not be able to claim the SFI or apply for most options under Countryside Stewardship or the emerging “Local Nature Recovery” ELMS scheme. The RPA says that they expect existing CS and ES agreements to be transferred to whoever takes on the land following your retirement. It is not clear how existing agreements on the 5ha or less of retained land will be handled.
13. A partnership can claim the Lump Sum if a partner/partners entitled to 50% of profit (combined) leave/s the partnership, and a company can claim the Lump Sum if a shareholder/shareholders holding 50% of shares leave/s the company. However, the company or partnership must surrender all its entitlements and will then be unable to claim BPS or delinked payments. Partnerships and companies “retiring” in this way will still be able to claim the SFI and Local Nature Recovery scheme in full and apply for Countryside Stewardship without restriction. The company or partnership also cannot then be dissolved and have its land transferred to individual shareholders or partners (although they will still be able to claim the BPS and delinked payment on any land they occupy as individuals). It is unclear whether company or partnership land could be transferred to a separate, new company or partnership with some of the same partners/shareholders, and whether that entity could then claim the BPS in 2022 and 2023.
14. The scheme will open for applications in April, and the deadline will be the 30^th September 2022.
15. The Lump Sum will only be paid once your entitlements have been surrendered and the RPA is satisfied that you no longer occupy more than 5ha of agricultural land (or the required partners/shareholders have left the partnership/company).
16. You can continue to claim the BPS prior to surrendering your land, even if your application for the scheme was successful. However, the value of your 2022 and/or 2023 claim will then be deducted from the Lump Sum.
17. The ultimate deadline for retirement i.e. completing on a sale, surrender of a tenancy, completing the letting and the transfers or woodland creation project is the 31^st May 2024. This can sometimes be extended for probate or Agricultural Holdings Act 1986 succession cases.
18. The Retirement Lump Sum is subject to Capital Gains Tax.

To start considering an application, the first step is to obtain a “forecast statement” from the RPA. Application forms, as discussed above, will be available from late April. However, there is important preparatory work to consider before this time. To maximise your claim, you will need to have the correct amount of entitlements. Any excess should be sold because otherwise it appears they will be lost. If you plan to claim the Lump Sum before the 2023 entitlement transfer window, your entitlement situation must be correct by the 15^th May this year. It may also be possible to transfer entitlements between family members and then back to the Lump Sum claimant to ensure maximum income in the interim period and from delinkage.

Additional considerations include the effect of the disposal on your tax situation, the practical management of succession within the family, the preparation of tenancies and surrender documents, and the valuation of partnership assets and management of partnership agreements. While the scheme itself will be we hope relatively simple, succession is by nature a complicated business, whether such a Lump Sum is involved or not. This complication must be managed from time to time for all families and it is better to have the Lump Sum to assist with it, but claimants would be advised to have made arrangements for these other matters in good time as well.

English BPS Delinked Payment – Further information released by RPA

The RPA have also provided further information about the BPS Delinked payment. Whilst payment rates are yet to be confirmed, other important detail has been given:

1. The reference period for Delinkage is now 2020-2022. This means that entitlements bought for the current scheme year will be factored into the Delinked payment.
2. Each year’s Delinkage payment will be based on the average payment received during the three claim years of the reference period, with the annual reduction applied between 2024 and 2027 (only 2024 confirmed so far).
3. You do not need to have been farming prior to the reference period.
4. This means even if you begin farming this year, you will still be able to claim some Delinked payments, one third of what you would receive if you had claimed throughout the reference period.
5. A successful BPS claim must be submitted in 2023 for Delinkage to be claimed, but the size of this claim will not be factored into the calculation.
6. Breaches and penalties, including for greening, cross compliance, overclaims etc, will not be factored into the Delinked payment.
7. Where an overclaim has been made during the reference period, the claim will be reduced to the actual area for calculation purposes.
8. An application of some kind will be required for the payments. It is not known at this stage if this will be submitted annually, or just once for all payments.
9. If your SBI has changed during the reference period or for 2023, this may affect the payments you receive.
10. Delinked payments are to be treated as income for tax purposes.
11. Delinked payments cannot be claimed when a Retirement Lump Sum payment claim has also been made.
12. On Delinkage, i.e. after 2023, BPS entitlements will cease to have effect and so will be effectively abolished. Given that entitlements have a market value, this may constitute an allowable loss for Capital Gains Tax purposes.
13. Unlike the Retirement Lump Sum, the farming business will still be able to participate in ELMS and other agri-environment schemes.

Particularly notable is the change in the reference period, which now includes 2022. This means that this year’s claim will now also affect the payment received from 2024 to 2027: every additional non-SDA entitlement claimed for 2022 not only increases the 2022 payment by up to £187 (depending on the size of your claim), but also increases the payment from 2024-2027 by 1/3 of a hectare. By our calculations (which are based on some educated guesswork for the delinked payment rates from 2025-2027) this means each entitlement claimed could result in an extra £284 in total for smaller farmers. Therefore buying more entitlements for 2022 to match your eligible area is an important consideration.

In an interesting comparison, using the same formula, each entitlement for the largest holdings (1,589 acres or more) this year is worth only an extra £163. This means at today’s prices of £150 per non-SDA entitlement, the largest holdings stand to make only £13 per entitlement. However, if land without entitlements was instead let out as “naked acres” for, for example, £50/acre (£40 net of commission), to allow a smaller farmer to claim on it the larger holding would instead make approximately £99 per hectare of land without entitlements, more than 7.5 times what they would make from buying entitlements in. The smaller farmer with excess entitlements, moreover, would stand to make £160/ha after the rental for letting in this land, which is £24/ha more than the £136/entitlement (net of sales commission) they would have made from selling their entitlements. There is clearly a market to be had within this discrepancy. This year, where possible, rather than buying and selling entitlements, larger holdings with excess land should seek to let this out so smaller farmers with excess entitlements can claim on it. Both parties will make extra money from this arrangement than if the smaller farmer simply sold their entitlements to the larger. There is potential, if both groups see this opportunity, for this to drive down the price of naked acres and substantially increase their prevalence. Whilst last year’s average price per naked acre was £73/acre, at this price an arrangement like this would not work, the case may be that more land will become available because of delinkage, and naked acre letting will become more popular.

This information for now is drawn from the RPA’s initial proposals, and is pending further, more detailed guidance and the creation of enabling legislation, so may still be subject to change. Professional advice should be taken before relying on this information and if you would like to discuss your particular situation, please contact Hugh Townsend.

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