Farmers will be offered up to £100,000 to retire

Long-awaited details have been published on Defra's Lump Sum Exit Scheme, part of a drive to encourage older farmers to leave the industry and pass on their land to a new generation.

The policy is an attempt to address long-standing issues in the farming sector caused by an ageing workforce and to help younger farmers who are struggling to buy land and get into the industry.

The scheme offers the option of taking a one-off payment in place of any further receipts under the Basic Payment Scheme (BPS) – the subsidies being phased out after Brexit in favour of a new system of environmental payments.

To be eligible, farmers will need to surrender their BPS entitlements and dispose of almost all their agricultural land by sale or gift.

The basics of the scheme are similar to what was consulted on last year, but there are some important new aspects which may affect retiring farmers' decisions, said Norfolk rural agents.

Tom Corfield, agricultural partner at Arnolds Keys-Irelands Agricultural (Image: Arnolds Keys-Irelands Agricultural)

Tom Corfield of Arnolds Keys - Irelands Agricultural, said: "The original proposal stipulated that retiring farmers would have to dispose of at least 95pc of their agricultural land to qualify, but this has now been changed so that they can retain up to five hectares of agricultural land, no matter how big or small their farm.

“Retiring farmers will also be able to retain all of their land if they transfer it into the Woodland Creation Scheme – and will still be eligible to receive payments under the England Woodland Creation Offer.”

Qualifying farmers will receive a lump sum equivalent to 2.35 times their average BPS payment, subject to a cap of £42,500, meaning the maximum lump sum payment will be £99,875.

The document published this week also clarifies that exit payments will be treated as capital and therefore subject to capital gains tax.

“The tax situation is important, because most retiring farmers will already be disposing of their capital assets at the same time as they receive the lump sum payment,” said Mr Corfield.

“Overall, this is a useful scheme, but still limited in its scope. Every case will be different, and it will be vital to consider whether it’s better to take advantage of the Lump Sum Exit Scheme or whether a transfer for BPS entitlements to a successor might be a better option."

Simon Wearmouth at Brown and Co in Norwich (Image: garynaylorphotography.com)

Simon Wearmouth, a partner at the Norwich office of Brown and Co, said there are also opportunities for tenants under old style Agricultural Holdings Act Tenancies who could qualify by surrendering their tenancy.

“Given the change the industry is undergoing, the availability of these lump sum payments is a potential bonus for businesses considering retirement, sale or succession," he said. "The scheme should be used as a catalyst for farmers to review their options."

Industry viewpoint

National Farmers' Union vice president Tom Bradshaw said: “With the rollout of the first domestic agricultural policy for more than 40 years currently taking place, farmers across the country will be making difficult decisions about the future of their farm business.

“For those thinking of leaving the industry, the clarity provided by the government today is incredibly important.

“Farming is a job like no other and deciding to leave the industry will be deeply subjective to each person. I would encourage anyone considering this to take advantage of the free and confidential business advice being funded by Defra."