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DEFRA consultation

Posted on 7th June, 2021

DEFRA consultationMuch has been written over the last week or so about the DEFRA consultation concerning the proposed lump sum exit scheme.

The consultation is actually in two parts: firstly, looking at the lump sum exit scheme and, secondly, at the proposal for delinked payments.

The lump sum exit scheme is currently just a proposal – whether or not this comes to fruition will likely depend upon the responses to the consultation. This may be attractive to some farmers who are seeking an exit strategy, but it comes with all of the usual caveats about potential tax liabilities and the consequences of accepting any lump sum.

Having attended an event hosted by the NFU in recent days. It appears that a lot of farmers have reservations about the lump sum payments and there are still many unanswered questions.

Firstly, the amount of those payments, which is set to be capped at £100,000. In reality, it is anticipated that the average payment will be in the region of £50,000. If the exiting farmer needs to buy a new home then this is hardly sufficient for that purpose. Even the maximum sum of £100,000 is unlikely to be enough to buy a property in a rural area.

Secondly, we don’t yet know how these payments will be treated for tax purposes. If tax is to be deducted then the lump sum may be too small to convince any farmers to take it up. As things stand, HMRC cannot confirm how the payments will be treated, so it really is a guessing game at the moment.

What if the farmer is signed up to agri-environmental schemes which run beyond the date that they wish to take the lump sum payment? Will they be able to get out of the agreement without penalty? The feeling of some is that the farmers didn’t know about the lump sum exit payments when they signed up to their agri-environmental agreements, so they shouldn’t be penalised if they choose to exit farming and take advantage of the incentive. Whether that will be the case remains to be seen and it is unlikely that we will get an answer to this before the consultation period ends.

Some clarity needs to be given about farming partnerships. If there is a family farming partnership, would the whole of the partnership need to retire from farming in order to be able to take advantage? This seems to be an anomaly for which there isn’t yet an answer but if the farming partnership is made up of older and younger generations it seems unlikely that this will be an option for them.

It seems that there are many unanswered questions. This suggests that the best that we can expect from the consultation is for the Government to realise that there are lots of other factors which need to be considered before they contemplate bringing in such arrangements. Farmers are unlikely to commit to accepting the lump sum payments, which would require them to step away from farming entirely, if there are more questions than answers.

The second element of the consultation focusses on payments going forward. The current arrangements are being phased out over the next few years and will be replaced with delinked payments. Delinked payments are on the way and are not optional, as the Government is keen to point out in the consultation notes.

The intention is to simplify the process of claiming payments and the consultation is seeking views about eligibility and how to calculate the value of those payments. This will impact on everyone currently claiming BPS payments.

It remains imperative that the different generations of farming families discuss their views and plans for the future, so that they can work out whether the lump sum exit scheme might be of interest and might help them with their succession planning, and establish how delinked payments might affect the business. As ever, seeking advice from professional advisers at an early stage is imperative. It is important to understand how the decisions being made now might affect the business in the future, particularly where there are changes ahead but where the detail is not yet known.

 

Nicola Neilson, Partner and Head of Agricultural Property

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