Early exit scheme

midlandslad

Member
Location
Midlands
This was meant to be out in October 2021 and has since been delayed. I understand that discussions are ongoing with HMRC as to the tax treatment of the lump sum.

The above doesn't help those looking to plan and potentially exit though.
 

serf

Member
Location
warwickshire
Had this thru other day

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01392 823935
Exeter Livestock Market EX2 8FD
www.townsendcharteredsurveyors.co.uk
DO NOT DISMISS OUT OF HAND THE BPS RETIREMENT LUMP SUM

Following an emotive build-up, when proposed details for consultation of the BPS retirement lump sum were finally released last summer the response was rather subdued. Instead of the large pay-out many were expecting, the actual figure was to be a “mere” 2.35% of the average BPS claim from 2018 to 2020. Moreover, there was a possible mechanism for reducing this if any entitlements had been transferred or sold.
Following these revelations, discussion of the subject ceased almost entirely among professional advisers and the farming press. The conclusion was that the scheme might only be of any relevance for those who happen to be planning to retire anyway at the exact time the scheme comes into effect, and there was not enough in it to influence decision-making.
Is this really correct, though?
For example, let us consider a “small family farm”. It is currently presided over by an older family member who is thinking about stepping back and handing the reins to the younger generation, but doesn’t know whether to do so right now, or to stick it out for another few years. The farm includes approximately 300 acres of BPS eligible land, so 120 entitlements-worth of BPS claim. First, what payments would they get if they stayed on:
  1. Based on current calculations, they would receive £187/entitlement in 2022 and £152/entitlement in 2023 (the remainder of the BPS in its current form). That makes £339 per entitlement in total, which comes to £40,680; plus
  2. 4 years of delinked payments, which in our estimations (which are really educated guesswork after 2024, as the Government has released no detail even subject to consultation about these years) make this worth £292 per entitlement. In total this comes to £35,040 over the 4 years.
This means without the retirement lump sum, on our estimations, these final six years of so-called “direct payments” are worth £75,720 to the farm.
Now suppose instead that the older family member, or whoever is in charge decides to take the lump sum at 2.35% of their average claim from 2018-2020. On this area of land, that would be worth £65,593. In other words, most of the farm’s BPS payment for the six years in a single sum, providing much greater flexibility for reinvestment.
Because of how the reference periods are likely to work the successors would lose their claims for delinkage. However, they can still buy entitlements to claim in 2022 and 2023. This means the business also still gets the £40,680 remaining BPS payment, but they need to deduct the price of 120 new non-SDA entitlements, which are currently estimated to trade at £150 per unit. Deducting this £18,000 cost still leaves £22,680 of remaining BPS payments.
In total, this means that from claiming the retirement lump sum, the hypothetical farm’s total “direct payment” is now £88,273, a £12,553 increase in funds. When we combine this with the fact that the £65,768 would be received as a single lump for immediate use, the business case for taking the retirement lump sum could be more interesting than first thought .
There are caveats, of course. The “retiree” must genuinely cut ties to the business. This means leaving any partnership and passing on legal control of assets. They would, we think, still be able to help on the farm with day-to-day activities (although this is very much unconfirmed), but there would need to be a real surrender of control. There would also be a legal cost to handing over the business but this cost is inevitable and is going to apply at some point regardless, and perhaps it is better dealt with using the monies available from the lump sum to fund this. The tax implications will also need to be considered which we have not in this example.
We must also remember that for now all of this is subject to consultation, so everything we have just discussed may be rendered moot at DEFRA’s next release. We are also talking about a quite specific size of farm. If the farm is too small, the complexity of the exercise compared to the monies involved is likely to make it less commercial. If the farm is too large, the £100,000 cap comes into place and the lost delinkage may outstrip earnings from the lump sum.
However, looking in detail at the figures, for farms of the right size, in a specific position where a retirement possibility is being considered but not currently on the table, it might be worth taking another look at the lump sum when the final details are announced any day now.
 

2tractors

Member
Location
Cornwall
Quite rightly the example quoted is caveated by the fact that the scheme is still just a consultation and the final rules are not announced. However I draw peoples attention to the following points in the consultation document which could have long term impacts on partnerships and limited companies; This suggests the remaining partners/directors would not be able to join Mid Tier or SFI etc at any point in the future or claim any remaining BPS- be very careful!


From the consultation., critical bits in bold.

Our proposed lump sum exit scheme is aimed at those farmers who claim BPS and wish to exit the industry.
5.10 A condition of the lump sum is that all the English BPS entitlements held by the BPS applicant would be cancelled. Entitlements are what farmers use to get paid for BPS. We plan to cancel all the English entitlements the BPS applicant holds, including any they have leased-in from another farmer. Where they have leased-out English entitlements, these would be cancelled at the end of the entitlements’ lease. We are not proposing to allow applicants to choose to keep some of their English entitlements and take a partial lump sum.

5.11 The farm business that takes the lump sum will not be able to claim any further Direct Payments. Where the business is a limited company, we propose that the directors will also be unable to claim future Direct Payments. Where the business is a partnership, we propose that all partners will be unable to claim future payments. This is because the lump sum is aimed at those who are leaving farming.

5.12 We also intend that if a lump sum recipient enters into certain new land management agreements (or adds land to existing agreements), such as Countryside Stewardship and the Sustainable Farming Incentive, during the remainder of the planned agricultural transition, they will have to repay the lump sum. We propose that the same condition will apply to directors of limited companies and all partners of a partnership.

5.13 We do not propose to prevent a lump sum recipient from working as a contractor or working for other farmers.

5.14 To be eligible for the lump sum payment, the farmer (BPS applicant) would have to give up their land in England. This means that: • an owner-occupier must sell and/or rent out their land in England, and/or transfer it by gift; and • a tenant must surrender their tenancy for land in England. The tenancy can either be a Farm Business Tenancy under the Agricultural Tenancies Act 1995 or an Agricultural Holdings Act 1986 tenancy. The length of the tenancy does not matter.
 

Jrp221

Member
Mixed Farmer
Location
Cornwall
Not actually worth claiming if you only have a small acreage, if we gave up at the rate they are saying we could retire on a sum equal to the annual living wage, what’s the point, may as well carry on. Decided the older we get we will get smaller 🐑.
 

Formatted

Member
Livestock Farmer
I have met at-least one AHA tenant who's given notice to their landlord with the intention of collecting the Exit Scheme cheque this Autumn, but I have only met one. They've already re-let the farm, so not sure what happens if the exit scheme doesn't appear!

In theory for older tenants who have no assets the exit scheme is a parachute for a graceful retirement, but as the above email from the agents shows it's open for potential abuse.
 

puppet

Member
Livestock Farmer
Location
sw scotland
In theory for older tenants who have no assets the exit scheme is a parachute for a graceful retirement, but as the above email from the agents shows it's open for potential abuse.
A lot of farmers got their quota for free in the 1980's so a nice windfall now. What happens to the bare acres which goes to a new entrant? They get entitlements from a reserve which may just mean a 5% reduction from all the other claimants to fill that void. And 90% new entrants will be farmers offspring looking to expand the holding so smaller farmers will help fund their expansion. It has never seemed fair when changes are made.
I don't get the idea that a tenant has no assets at retirement as the old rents were less than trying to pay off a bank loan. You should have built a reasonable herd to sell at retirement. There is a house included which any other man on the street has to take 25 years to pay off the mortgage so with some planning you can re-direct that to a private pension.
Or you can avoid tax by buying a brand new tractor every 3 years and pass the profit to the local dealer instead :banghead:
 

2tractors

Member
Location
Cornwall
I have met at-least one AHA tenant who's given notice to their landlord with the intention of collecting the Exit Scheme cheque this Autumn, but I have only met one. They've already re-let the farm, so not sure what happens if the exit scheme doesn't appear!

In theory for older tenants who have no assets the exit scheme is a parachute for a graceful retirement, but as the above email from the agents shows it's open for potential abuse.
Bit premature I'd have thought, tenants best to leave farm in September 2023, from 2024 all payments delinked from land (according to consultation) so a little annual income top up until last payment in 2027. Of course the tenant above may have had a helping hand from landlord that made going in 2022 worthwhile.
 

Still Farming

Member
Mixed Farmer
Location
South Wales UK
Bit premature I'd have thought, tenants best to leave farm in September 2023, from 2024 all payments delinked from land (according to consultation) so a little annual income top up until last payment in 2027. Of course the tenant above may have had a helping hand from landlord that made going in 2022 worthwhile.
Obviously penny and bun now but if sfp really reduced and exit look more favorable then maybe a mass change to that.
Until one or the other looks better then not getting anywhere are they.
 

SFI - What % were you taking out of production?

  • 0 %

    Votes: 79 42.0%
  • Up to 25%

    Votes: 66 35.1%
  • 25-50%

    Votes: 30 16.0%
  • 50-75%

    Votes: 3 1.6%
  • 75-100%

    Votes: 3 1.6%
  • 100% I’ve had enough of farming!

    Votes: 7 3.7%

Red Tractor drops launch of green farming scheme amid anger from farmers

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As reported in Independent


quote: “Red Tractor has confirmed it is dropping plans to launch its green farming assurance standard in April“

read the TFF thread here: https://thefarmingforum.co.uk/index.php?threads/gfc-was-to-go-ahead-now-not-going-ahead.405234/
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