Lump Sum Exit Scheme and delinked payments: How the scheme will work and its implications for rural estates.
The Government has announced its long awaited Lump Sump Exit Scheme. The aim of this scheme is to help those farmers that wish to leave farming and free up land for new entrants and those farmers wishing to expand their businesses. A summary of the scheme can be found below:
- Applications can be made from April 2022 to September 2022 to take effect in May 2024. Once submitted, there is the option to withdraw the application if there has been a change of mind.
- Payment is received on condition of the applicant giving up control of their business and transferring their land to another party and transferring their BPS entitlements to the RPA.
- The payment rate is set on the average Basic Payment receipts for the reference years 2019, 2020 & 2021 and then multiplied by 2.35, with the maximum payment being capped at £100,000.
As part of the announcement, DEFRA has set out its plans for delinking BPS payments. From 2024 BPS payments will be replaced with ‘de-linked’ payments up until 2027. Delinked payments will be based on your BPS payments in a reference period (2020-2022) and to claim you won’t need any land or entitlements.
Implications for estates and landowners
This is a major announcement which will potentially shape the future direction of farms and estates farming policies for the next generation. It provides an opportunity for all parties to consider the value of a lump sum versus receiving a reducing annual payment.
For instance, it may provide a springboard for a discussion on succession in both in hand businesses and for landlord and tenants to engage about what could be a win win scenario.
As an example, a typical 300-acre family farm might have an average Basic Payment income of around £25,000 from the reference period. This would afford a lump sum of £58,750 in addition to any value from the sale of stock etc. In a Partnership situation, if the applicant has the controlling share, then they can be the applicant for the lump sum. The retiring partner then can transfer the business and land to other partnership members, who will then be required to establish a new business.
For a landlord and tenant situation, it opens a discussion for either side to consider whether a lump sum based on the known values is more attractive, than potentially managing a declining income stream from support payments in conjunction with a reshaping of the agricultural policy that might not suit the current farming business model.
There are many factors to be considered in both of the above hypothetical scenarios, but the underlying message is that this is the ‘spoke’ in the wheel that enables the farming industry to review and consider what is most appropriate for the future of their business.
If you would like any further advice or to discuss the opportunities that the scheme may present for your business, then please contact one of the Hewetson & Johnson team and we will be more than happy to help.