Details have been announced today of the Lump Sum Exit Scheme (aka the “retirement lump sum”), including eligibility requirements and the application window, which are summarised here.
If you have given up land since 2020 the scheme is worth considering:
- The value of the payment will be calculated from a reference period, which will be 2019-2021.
- The retirement lump sum claim will be 2.35 times the average value of your claims in these three years.
- 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.
- 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.
- 2021 claims do not factor in the tapered BPS reductions which began the same year. Any penalties for overclaims, cross compliance breaches, greening penalties etc will also not be factored into the calculation, but where an overclaim was made only the actual amount of land claimed upon will be considered.
- 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 as were used in your most recent claim in the reference period.
- To claim the lump sum, you must surrender all but 5 ha 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.
- 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 17th 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 17th 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.
- 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.
- 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 15th May 2018.
- All rights of grazing and pannage over commons must also have been transferred away.
- 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 just on the 5ha or less of retained land will be handled.
- 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.
- The scheme will open for applications in April, and the deadline will be the 30th September 2022.
- 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).
- 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.
- 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 31st May 2024. This can sometimes be extended for probate or Agricultural Holdings Act 1986 succession cases.
- The retirement lump sum is subject to Capital Gains Tax.
We await the application forms for the finer detail.
To start considering an application, the first step is to obtain a “forecast statement” from the RPA. We would be happy to arrange this for you free of charge.
If you would like an assessment of whether this scheme will be something that might suit your business please contact Hugh Townsend in full confidence. We will provide advice on estate planning including the tax implications for your business and family with other succession issues you may need to consider in your circumstances.
