Earlier this year DEFRA opened a consultation on the Lump Sum Exit Scheme. The intention of the scheme is to assist farmers who wish to retire by offering them a lump sum in lieu of the Basic Payments. The consultation, which closed on 11 August 2021, has received mixed reviews with a lot of commentary indicating that it lacked detail. The concept itself – a lump sum to retire – appears straight forward. So, is it that simple?
In terms of the scheme, the availability of any lump sum does have some provisos. Any farming claimant must have received Basic Payments since at least 2015 (although there is some flexibility where farms have recently been inherited and so on). The maximum lump sum available is £100,000. The lump sum is calculated as 2.35 times the previous BPS support. Many farmers will not therefore be eligible for the maximum sum available. It is also not clear how the lump sum will be taxed on receipt.
There are of course many other considerations for a farmer looking to retire. For sole traders who do not wish to pass the business to the next generation, consideration needs to be given to their existing responsibilities and liabilities. Can you afford to retire? How can the business be wound down? Does land need to be sold, transferred, or surrendered and are there any notice periods in respect of tenancies?
It is clear that to be eligible for the lump sum payment, the claimant must give up the land which they have farmed. This means they must sell, transfer or rent out their land. Alternatively, a farming tenant must surrender their tenancy. It is not yet clear how a farmer would evidence that he/she has given up their interest in a farm where it is not in their sole name (for instance, land held in a partnership or limited company). DEFRA are also consulting on the time period available to dispose of land and tenancies. Clearly, careful planning is required before any changes in land ownership are completed.
Further practical considerations will need to be given to the existing agreements in place within a farming business. For instance, does the farming partnership agreement deal with the withdrawal of capital on retirement and is this achievable? Any person exiting a farming business should also consider the tax consequences. These are wider than the potential taxes arising on the sale of land. For instance, on retirement will the Farmhouse still be your home? If so, this can have implications on your death as Agricultural Property Relief may not be available, which could in turn increase any Inheritance Tax payable by your estate.
It is difficult to summarise the many considerations which need to be considered on the retirement of a farmer. Not least because the most important question is, are you ready to retire from farming? If so, the next steps in winding up or passing on your business need to be considered against what is best for you and/or your business as a whole.
At Hay & Kilner, the expert lawyers in our Private Client Team can advise farmers and farming families on matters of succession planning, Inheritance Tax planning, the preparation of Wills and Lasting Powers of Attorney and the administration of estates and Probate. Please contact Rachael Leathley at email@example.com or on 0191 232 8345 for more information.