Lump sum exit scheme in England – further details announced

The Rural Payments Agency (RPA) at long last issued further details of how the lump sum exit scheme will work in practice in early February.

The consultation document from 2021 did not give any guidance on the tax treatment of the lump sum. Our view at the time was that it should be subject to Capital Gains Tax as it was a capital sum for surrendering Basic Payment Scheme (BPS) Entitlements. There was a fear that HMRC might treat the lump sum as subject to Income Tax, but the guidance issued on 8 February confirms it is a capital gain. This is good news as the rate of CGT will be either 10% or 20%. Careful planning is essential to ensure that a claim to Business Asset Disposal Relief is available, and the gain is taxed at 10%.

The key points of the scheme are as follows:

• Applications to the scheme can be made between April 2022 and 30 September 2022.
• Applicants must have claimed BPS in 2018 or have inherited land since 2018.
• A claimant must do all of the following before receiving the lump sum:
  
  • Transfer agricultural land that was at your disposal in May 2001, either by sale, gift, or entering into a Farm Business Tenancy for a minimum of 5 years.
  • Transfer or surrender any tenancies or grazing rights.
  • Surrender your BPS entitlements.
• The deadline for meeting the above conditions is 31 May 2024.
• A partnership or limited company can claim the lump sum provided partners entitled to more than 50% of profits, or shareholders holding 50% or more of the shares leave the business. The business must surrender all its BPS entitlements and cannot claim BPS in the future.
• The lump sum is based on the amount of BPS paid in 2019, 2020 and 2021. The average BPS paid in these three years is multiplied by 2.35, but is capped at £100,000.
• A business unsure whether to claim the lump sum can still claim BPS as normal for 2022. If they then apply for the lump sum before 30 September 2022, the subsequent lump sum payment is reduced by the amount of the 2022 BPS. The 2022 BPS is then taxed as a capital gain rather than income.

The clarification of the detail of how the scheme will work is welcome. Our view remains that the lump sum will be a useful addition to the retirement funds of those who have already decided to exit the industry, but is unlikely to encourage many others to cease farming.