Category: Updates

DEFRA’s Lump Sum Scheme – What might be on offer?

22nd June 2021

Following confirmation that the Basic Payment Scheme (BPS) will be phased out by 2027, DEFRA have launched a consultation, that will run until the 11th August 2021, regarding further changes to the payment regime. The focal points of the consultation are the de-linking of payments and the option for farmers to take a one-off lump sum payment. In this article, James Pyrah takes a look at some of the key points with regard to the latter.

The lump sum payment will provide farmers with a route to leave the industry. The offer is not targeted at recent entrants, and as such it is suggested that applicants must have made their first claim for Direct Payments in 2015 at the latest. DEFRA’s proposal would require owner occupiers to sell, gift, or let out the majority of their land. However, there is an option being considered for farmers to continue to reside in the farmhouse and retain up to 5% or 5 ha of land in order to have an income during retirement. In the case of a tenant farmer, it would seem that the tenancy would have to be surrendered or succeeded to in order to take advantage of the lump sum payment.

In return for the lump sum payment, the applicant would be required to surrender all of their BPS entitlements and not claim any further Direct Payments. In the case of limited companies and partnerships, the directors and partners would be unable to claim future Direct Payments. Further to this, if the recipient of a lump sum payment were to enter into certain new land management agreements, such as Countryside Stewardship, during the remainder of the agricultural transition period up to 2027, DEFRA have proposed that the lump sum would need to be repaid by the applicant.

The consultation indicates that the payment rate will be calculated on a reference amount multiplied by 2.35, with a payment cap of £100,000. It is suggested that the reference amount will either be based on an average of the BPS claims for 2018, 2019, and 2020, or alternatively, solely based on the payment in 2020.

The consultation does not provide any information with regards to the tax implications of receiving the lump sum, but this undoubtedly will impact the decision-making process. The matter is being discussed with HMRC and guidance is due to follow.

DEFRA expect the application period for the lump sum scheme to open in 2022 but have provided no further information with regards to the expected timing of payments. It is unclear as to the key dates for compliance, particularly if farmers retiring this year, will be eligible. However, DEFRA have confirmed that the applicant will not be required to have completed the transfer of their land or tenancy at the time of application. Further information is due by the end of October 2021 with regard to timing and key scheme rules.

Whilst the consultation is only an insight into what might be on offer, it does provide an opportunity to start planning ahead for those considering retirement from the industry.