Lump sum exit scheme and delinking payments – does the future look bright?

This week DEFRA have announced the initial consultation phase of their lump sum exit scheme is now open. This scheme was first mentioned when the agricultural transition plan was released back in 2017.

We have summarised the proposals below – it is worth noting that DEFRA are looking for farmers to take part in the consultation to help build a scheme that might work for them.

The reasoning behind the scheme is to offer a lump sum payment to farmers who wish to retire or leave the industry. This lump payment would be in lieu of any further direct payments from DEFRA, this is also combining with the introduction of “delinked” payments in 2024 until 2027. Any recipients of delinked payments will no longer need to farm the land to receive them, but that after 2027 payments will only be made available via environmental schemes and expanding grants to incentivise investments in technology (more information to be announced in time).

DEFRA are proposing the amount offered as a lump sum to farmers is to be calculated by taking the average BPS payment over the previous 3 years (but this is part of the consultation) and multiplying it by a factor of 2.35, this figure is being proposed as it equals the amount of money that farmers would have received between 2022 and 2027 via delinked payments. It is also worth noting that this figure will be capped at £100,000.

This scheme is hoping to be offered to owner occupiers and tenants and hopes to go live in the spring of 2022. Successful applicants who opt for the lump sum will be able to use this money, combined with the sale of livestock and machinery etc. to fund their retirement and allow a new generation of farmers to farm the land, or for existing farming businesses to expand. It is not clear yet if this payment will be taxed or tax free.

If an owner-occupier opts to take the payment, they must sell, gift, or rent their land out by a specified date. If a farmer is a tenant, then they must surrender their tenancy (length does not matter) or hand the tenancy down to the next generation, by a specific date. DEFRA would not restrict recipients of the payment from becoming contractors or employees of other farmers. If an owner-occupier wishes to let their land out, then DEFRA propose this is via a farm business tenancy (FBT) and that the agreement is for a minimum of 5 years.

Part of the proposals also cover the issue that farmers might wish to retire from farming but remain in the farmhouse. To allow for this, the proposals suggest that farmers would be allowed to keep their residential, commercial, and non-agricultural property and up to 5% of their land or 5ha – whichever is smallest. If farmers are found to have taken the lump payment but then carried on engaging with farming activities on their land – they would be required to pay back the full lump sum. If a farming business is a limited company or a partnership, the DEFRA proposals stipulate that none of the directors or partners would be able to claim future direct payments.

The consultation phase will continue until the summer of 2021, with more detailed guidance being issued in October this year. It is hoped that this will give farmers enough time for succession planning and deciding whether this scheme is right for you.

We must reiterate that the details in this scheme are currently proposals only. DEFRA are actively seeking engagement from farmers about this scheme. To take part in their consultation phase, please visit: https://consult.defra.gov.uk/agricultural-policy/lump-sum-and-delinked-payments-england/