Is the lump sum BPS retirement scheme an option for you?

While misleading headlines suggest “farmers could be paid £100,000 to retire”, in reality, the reaction to DEFRA’s lump sum retirement scheme can be described as lukewarm at best.

DEFRA has published details of its BPS retirement scheme and launched a consultation which runs until 11th August 2021. It confirmed farmers in England claiming under the Basic Payment Scheme (BPS) will be able to receive a lump sum in place of any further BPS or other direct payments from 2022.

Claimants must have claimed BPS since 2015 or before, though this rule will be relaxed in cases where a farmer has inherited land or succeeded to a tenancy since 2015.

The amount payable is calculated as 2.35 times the historic BPS, which means an annual receipt of over £42,000 is needed to get the maximum amount of £100,000. Most of the farmers contemplating signing up to the scheme will receive much less than £42,000.

The scheme applies only to farmers in England.

Frustratingly, there is no guidance on the tax treatment of the lump sum. Our view is that as it is a lump sum for giving up BPS entitlements, it should be subject to Capital Gains Tax. This results in a possible 10% rate of tax, with a maximum of 20%. There is however an argument that the lump sum is an advance of normal BPS receipts which will be subject to Income Tax and possibly National Insurance. As the receipt is likely to be in the same accounting period as the sale of livestock and machinery and the cessation of the business, a tax rate of at least 40% is more likely.

Those taking part must either sell their land, rent it out, or surrender their tenancy. DEFRA is consulting on the time period a business has to dispose of their land/tenancy. A business renting out land must do so via an FBT of a minimum of five years.

Many farming businesses have complex structures involving more than one generation. If the business takes the lump sum, it precludes all partners or company directors from claiming future direct support payments. Therefore, this scheme may not be suitable for families where the older generation is ready to retire but the younger generation wishes to continue.

The consultation document does say that measures will be introduced to prevent the lump sum from being claimed using “artificial changes”.

The complexity and short timescales involved in making a claim will mean that it is unlikely there will be a big take-up of the scheme. On the other hand, for those who have already made the decision to depart the industry, the scheme may help them make a more dignified and financially secure exit.