With the phasing out of the basic payment scheme (BPS) and multiple pressures facing farmers in the current climate, some farming businesses may be considering a change of direction or ceasing.
Rather than waiting until the BPS scheme is phased out in full in 2027, the RPA will provide a lump sum payment for an earlier exit. The lump sum is set at an average of the 2019 to 2021 BPS receipts, multiplied by 2.35, with a cap of £100,000. A forecast payment can be requested from the RPA.
ELIGIBILITY
Businesses will be eligible if BPS payments were claimed in the 2018 scheme year or earlier. Eligibility also includes business that have inherited agricultural land in England, or succeeded to an Agricultural Holdings Act 1986 tenancy, after 15 May 2018.
In order to qualify, all land, other than woodland creation schemes, non-agricultural land, and a permitted five hectares of agricultural land, must be transferred out. English BPS entitlements will need to be surrendered. Ongoing work as an agricultural contractor is permitted.
Landowners can transfer land by sale, gift or granting a minimum five year farm business tenancy. Tenants can transfer land by surrendering, reassigning the tenancy or by succession on an Agricultural Holdings Act tenancy.
TIMING
The scheme is now open for applications and closes in September 2022. The scheme will not reopen next year so this is the only opportunity to apply (a very short window for such a significant decision).
Land must be transferred by 31 May 2024, and payments of the lump sum will take place between November 2022 and 31 May 2024. It is recommended businesses apply for the 2022 and 2023 BPS in the event that a land transfer is delayed.
TAX TREATMENT
The government intend to treat the lump sum as capital in nature. For a partnership or sole trade, based on current 2022/23 tax rates, this would mean the first £12,300 per individual would be exempt (assuming no other gains in that year), and the balance taxable at 10% or 20%, dependent on other income.
The lump sum could be taxable at 10% if business asset disposal relief applies. A company will suffer corporation tax in 2022/23 at 19% on the income.
PARTNERSHIPS AND COMPANIES
If only some members of a company or partnership wish to leave the business, as long as their combined interest is 50% or more, then the land transfer can take place to the remaining parties with the business still being eligible for the lump sum exit scheme.
IMPACT
The uptake is not expected to be substantial for this scheme. The lump sum is not a higher payment than would be received over time if farming continues. It is an early payment to allow a more managed exit from the industry with a capital sum to ease the transition. For businesses who are planning to exit anyway, perhaps due to lack of succession or a tenancy coming to an end, it could be a welcome bonus.
For more information please contact Sue Birch sue.birch@hazlewoods.co.uk or 01242 680000.