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DEFRA's farm exit scheme and financial planning

Farmers exit scheme in England 

What is the farmers exit scheme? 

In February DEFRA announced the long-awaited detail on the lump sum exit scheme. The scheme provides farmers in England with the option to give up their rights to future payments under the current subsidy system (known as the Basic Payment Scheme) in exchange for a lump sum.

As Agriculture policy is a devolved responsibility, farmers in Scotland, Northern Ireland and Wales are not eligible for this scheme. 

What about the Basic Payment Scheme (BPS)? 

BPS payments are being phased out through a series of reductions over a seven-year period from 2021 to 2027. There will be no more BPS payments after 2027. From 2024 – BPS payments will be ‘delinked’ meaning the farmer will no longer need to hold land or BPS entitlements to receive the payment. 

What is the exit payment?

Farmers are being given the option to give up their entitlement for future BPS payments in exchange for a lump sum. The lump sum will be calculated by taking the average of BPS payments received from 2019 and 2021 and multiplying by 2.35.

The average payment is capped at £42,500 meaning the maximum lump sum is £99,875. 

How do I qualify?

To receive the lump sum the farmer must ‘transfer’ their land by either: 

  • Selling  
  • Renting it out on a minimum 5-year farm business tenancy 
  • Giving it away 
  • Surrendering their tenancy 
  • Planting woodland

The farmer can retain up to 5 hectares of agricultural land, residential and commercial property and any non-agricultural land. 

I’m a partner in a business or shareholder in a company, can I receive the exit payment?

The exiting partner or shareholder must hold a 50%+ interest in the partnership or company. This can be one or more partners/shareholders where they hold a combined interest of 50%+. If a partnership or company claims the lump sum the ongoing business won’t receive any further BPS payments. They may apply for other land management schemes.  

When can I apply and when will I receive the payment?

Applications can be made from April until 30th September 2022. The transfer of the land needs to be completed by 31st May 2024. The lump sum will be paid on evidence that the land has been transferred or planted with trees under a woodland creation scheme.

Is the lump sum subject to tax?

The lump sum will be subject to Capital Gains Tax. The annual exemption of £12,300 will be available. Business asset disposal relief (formerly known as entrepreneur’s relief) which allows up to £1 million of lifetime gains to be taxed at 10% rather than the top rate of 20% may also be available.  

What could this mean for my finances?

Inheritance tax

If you decide to stop farming and let your land on a farm business tenancy, it’s unlikely that your farmhouse will qualify for Agricultural property relief, which may mean an unexpected inheritance tax bill on your death. 

Similarly, if your land or buildings have any development of ‘Hope’ value and you are no longer farming you are unlikely to qualify for Business property relief which could significantly increase the amount of Inheritance tax payable. 

If you decide to sell your land, buildings, stock or machinery, you could be exposing the proceeds to Inheritance tax.  

Whatever your plans, an NFU Mutual Financial adviser will be able to advise you on the impact on your inheritance tax liability and the options available to reduce the tax bill you leave behind. 

Taking money from your pensions 

If you’re thinking about stepping away from farming, you may need a replacement income. There are a range of options when it comes to taking money from your pensions. Before making any decisions it’s important to understand all the options and the tax implications. Your NFU Mutual financial adviser will tailor a plan for you.

Handing on wealth 

When it comes to passing on wealth to younger generations it’s important to take advice to ensure it’s handed on in the most tax efficient way.

Investments 

Whether you’re investing for Income, growth, or both your NFU Mutual Financial adviser can devise the right plan to meet your unique needs.