In a bid to breathe new life into the farming industry, the government has announced plans to introduce a ‘retirement scheme’ as part of its proposed reforms to agricultural support in England.
Farmers currently receive direct payments under the Basic Payment Scheme (BPS) which are paid on a flat rate per acre basis. However, this will be phased out by 2027 and replaced by a number of schemes designed to encourage more environmentally friendly farming.
The proposed retirement scheme would give participating farmers a lump sum payment in 2022, amounting to roughly the same amount they would have received through BPS between 2022 and 2027.
“In a post-Brexit world, the government’s intention is to help to modernise the agricultural industry to increase productivity through technological advancement and modernisation whilst encouraging succession planning and retirement to ensure that younger ‘progressive’ farmers are in occupation and control of the land,” Carter Jonas Partner Simon Pallett says.
“The average age of farmers is around 60 and a major hurdle to succession planning is a lack of retirement provision and housing, particularly for tenant farmers.
“This is an all-or-nothing scheme with a commitment to leave the industry, preventing partial or phased retirement.”
Although the proposed move is well-intentioned and a step in the right direction, it won’t suit everyone.
“The principle behind the scheme is right, providing the farmer receives an adequate net sum,” says Mr Pallett. “Sole traders who are approaching retirement age and should be considering their future and making succession plans stand to benefit the most.
“But it probably won’t suit those businesses with complicated structures – it would be a more complex process for those with multiple partners or directors, as each decision affects more than one person.”
The proposed basic principles of the scheme include:
- To be eligible the farmer must have claimed BPS payments in 2015.
- The lump sum will be based on the average BPS payments received from 2018-2020
The amount paid will be 2.35 x the reference amount and will be capped at £100,000
- To claim the payment, any BPS entitlements must be surrendered, including where the retiring farmer(s) leave a younger generation active on the farm
- The retiring farmer must then sell or rent out at least 95% of his land; if renting, the land must be rented out for a minimum period of 5 years.
The retiring farmer and any partner or co-director of a partnership or company of which the farmer is a member cannot claim any more direct payments and if they enter a new management agreement such as Countryside Stewardship or ELMS then the lump sum would have to be repaid.
The exit scheme is not a grant and therefore Capital Gains Tax will be due on any payment. For this reason, anyone considering the scheme should consult with their financial adviser.
The proposed scheme would not suit those businesses where the older and younger generations are farming in partnership, as the latter would not want to forgo their right to claim future direct payments or be precluded from entering new environmental schemes.
However, one instance where the scheme could prove of particular benefit is during retirement discussions between landlords and tenants.
“It should encourage, and ought to encourage, landlords and tenants to talk about a retirement package that would be of mutual benefit,” Mr Pallett advises.
As well as giving landlords an opportunity to begin discussions, this scheme also affords the opportunity to build a package that suits everyone.
“The landlord would be able to get the farm back in hand, which they can then re-let or sell. This will be of particular interest to anyone who granted a tenancy before 1995,” Mr Pallett says.
“After that date, any tenancy gets 100% agricultural property relief (APR), but before it the landlord would only receive 50%. So it’s a big advantage for a landlord to have a new tenant in place with a new tenancy as that would quality for 100% APR.
“This situation also benefits the existing tenant as the landlord should be able to pay them over and above the Defra payment as part of a package.
“Doubts remain as to whether the exit scheme will prove sufficiently financially attractive to encourage a significant number of farmers to retire to meet Defra’s objectives.
“However appropriate advice should be sought in good time so an informed decision can be taken.”