Tenant farmers need to fully understand the details and tax implications of the Government’s lump sum exit payment scheme before making any decisions about their retirement, says Carter Jonas.
Details published this week should be welcomed but may not go far enough, according to James Bradley, a Partner at the firm.
Mr Bradley said many farmers have been waiting to see the details of the scheme, so the development should be viewed as “a positive and helpful step”.
He said: “The issues that businesses face with succession planning and/or retirement, coupled with barriers to entry experienced by younger farmers, are well known, so it’s worth looking at any initiative that can smooth a path out of, or in to, the industry.
“Careful consideration should be given to the offer being made by Government and how this might benefit an individual retiree’s plans. For example, full residential value is rarely reflected in the rent paid for Agricultural Holdings Act tenancies, and the outgoing farmer will find residential rents to be both higher and reviewed more often.
“Operation of farm businesses can also offer other allowances and benefits that should not be forgotten when making an evaluation. A lack of retirement provision and availability of housing is a major problem for many tenant farmers.
“The lump sum exit scheme is not a grant and will therefore be subject to Capital Gains Tax. With no base cost of entitlements, the whole amount will be subject to tax. Individuals should consult with their financial adviser and check personal allowances that may be used to offset gains.
“The principle behind the scheme should be supported, and for those who are already planning or considering retirement, the offer from the Government could be an added incentive to act. However, it would seem unlikely that the details we have seen this week will be the catalyst for a large number of retirements, which is the significant shift that Ministers are hoping to create.”
Read more: What is the lump sum exit scheme >