Defra will publish the details on how this scheme will work in October 2021 with a view to applications being considered in the first half of 2022.
Here is what we know so far in terms of Defra’s proposals which are currently open to consultation:
- It will only be available to people who started claiming Basic Payment Scheme (“BPS”) money in 2015 or earlier, so as to limit it to more established farmers. There may, however, be an exemption for those who have either inherited a farm or succeeded to an Agricultural Holdings Act (”AHA”) tenancy more recently.
- Farmers who apply will be required to quit farming and surrender their BPS entitlements. Land must be sold, gifted or leased out on a minimum 5-year FBT, or passed to an AHA successor.
- In return, the proposal is that they will receive a lump sum payment of 2.35 times their average annual BPS payment received from 2018 to 2020. As an example, a £25,000 direct payment would qualify for a lump sum in 2022 of £58,750.
- This would be subject to a cap of £100,000, which would effectively restrict payments to anyone receiving more than £42,500 in the reference year. Given that 85% of BPS claims are for less than £25,000, this will not affect too many claimants.
- A successful applicant will be able to stay in the farmhouse and keep up to 5% or 5ha of agricultural land, but no stewardship arrangements can be entered into.
- There will be no restriction as to how the lump sum payment must be used, but the proposals are pretty tough for company directors / partnerships whereby the suggestion is that all partners and directors of the business will also be unable to make BPS or stewardship claims through any other business or would be subject to potential clawback of the lump sum.
- The remains of the BPS will be delinked from the farmland come 2024. Farmers must have been farming until the end of 2023 to be eligible.
One of the big unknowns at this stage is how the lump sum will be taxed with discussions still being held with HMRC. However, as with all things, we must be mindful of further tax implications as a result of an exit, particularly the impact on valuable inheritance tax reliefs, and we are on hand to discuss matters further if you would like to give one of our Agricultural Team a call.