Lump sum exit scheme: what does it mean for farmers in the South West?

Ed Coode, Associate Solicitor in Coodes Solicitors’ Rural Services Team says the lump sum exit scheme for farmers could have a significant impact on the region’s agricultural sector.

The Government recently issued its Lump Sum and Delinked Payments Consultation. This adds significant detail to the Agricultural Transition plan proposals originally announced in November 2020, which introduced the intention to phase out farming’s basic subsidy – the Basic Payment Scheme (BPS) – up to 2028.

The plans include the option for farmers to opt for a lump sum payment in 2022/2023, which rolls up the remaining six or so years of diminishing BPS payments. This proposal initially attracted, at best, a mixed response from the farming community. However, as uncertainty across the sector has grown and details of the significant sums (up to £100,000) likely to be on offer have been released, it is now being considered by a significant proportion of our region’s farmers.

What is the lump sum exit scheme?

The Agricultural Transition Plan for the Basic Payment in England includes the option for farmers to receive their remaining payments as a lump sum from 2022. To qualify, farmers need to retire from farming, so the lump sum exit scheme is a form of retirement scheme. While the lump sum amounts will vary, payments will be capped at £100,000.

Applicants must meet certain criteria, including having claimed under the Basic Payment Scheme since at least 2015. Landowners who opt for the lump sum will need to sell or rent their land, though they can keep their home, while tenant farmers will have to surrender their tenancy.

Will the scheme be a tipping point for farmers?

With applications for the exit scheme due to open in 2022, many farmers are now likely to be considering accepting a lump sum and retiring from farming. Agriculture is known to be an aging profession with many farmers in their 70s and 80s. However, it is likely that some in their 50s and 60s will also consider early retirement to take advantage of the scheme.

Farmers are incredibly adaptable and resilient. They are well known for riding out challenges and making things work. However, in the midst of so much uncertainty the lump sum exit scheme is likely to be seen as a safe option for some. For others it might provide the much needed capital to convert the barn they have always eyed into the perfect retirement bungalow.

In the face of Brexit, worries about the implications of trade deals and the shift to the new model of environmental land management, the scheme may be a tipping point for many farmers. As a result, we could see significant changes in the make up of our agricultural community over the coming months and years.

What will retiring farmers have to consider?

Every farm business is unique and there will be many important considerations for farmers who want to wind things up and take the lump sum. Getting professional advice at the earliest stage will be essential because early retirement could involve unpicking complex and, in some cases historic, legal documents. This takes time.

• Farming partnership agreements may need to be redrafted. Kirsty Davey, Partner and Head of our Corporate and Commercial team has a wealth of experience in interpreting and drafting farming partnership agreements.
• Tenancy agreements will need to be reviewed and unpicked before being dissolved. In some cases, this will involve working through historic documents that have not been reviewed for generations. Landowners will then need to set up new tenancy agreements. Partner and Rural Services team leader Pam Johns can provide advice on this complex area of law.
• Succession planning will be a priority for those farmers who want to pass their farm business onto the next generation. This is not just about tax and wills, it is also about treating family members fairly and reducing the risk of disputes later on. For advice on succession planning, please contact Partner and Head of Wills, Probate and Trusts Sarah Cornish.
• Tax consequences will arise from any change of land use. Farmers will therefore need to get advice at the earliest stage to ensure they are compliant and that they manage any change in the most tax efficient way.

While these are unsettling times for many, there are opportunities out there. Whether that means diversifying, investing or making the decision to retire, farmers are looking to the future and considering their options.

For further advice, please speak to a member of our Rural Services team.