Government plans to offer lump sum for farmers wanting to retire

The 12-week consultation outlines plans to offer a lump sum exit scheme to help farmers who would like to retire or leave the industry but have struggled to do so for financial reasons.

It also proposes to separate direct payments to farmers from the amount of land farmed, starting in 2024. Direct payments currently made through the Basic Payment Scheme, which will be phased out over seven years, are based on how much land the farmer has, which inflates rent and can be a barrier to new entrants.

The consultation is seeking views on who should be eligible for the lump sum exit payments and how payments should be calculated, as well as how the ‘delinked’ payments will be calculated.

In addition, the government is working with the industry, local councils and new entrants to design a scheme to support new entrants from 2022. Recommendations for the design of the scheme will be shared later in the year.

Environment secretary George Eustice said: “We need to address the twin challenges of helping new entrants fulfil their dream and gain access to land, while also helping an older generation retire with dignity.

“Our exit scheme will offer farmers who want to exit the industry all of the area payments they would likely have received until the end of the transition period in a single lump sum. It gives them a real incentive to confront what can often be a difficult decision and will help them clear bills and settle debts.

“By renting out their farm or surrendering their tenancy, those exiting the industry will create important opportunities for the next generation of farmers and later this year we will be saying more about our plans to work with County Farm estates and other land owners to ensure that we nurture the right conditions for new enterprises to flourish.”

Response from farming groups

A survey of 360 farmers by the Tenant Farmers Association (TFA) found that three quarters of respondents were seriously interested in the proposed lump sum exit scheme. TFA chief executive George Dunn cautiously welcomed the news from the government: “The Lump Sum scheme was never going to provide the complete solution for those looking to retire from agriculture. However, as part of a portfolio, which might include a surrender payment from a landlord for a secure tenancy, sale of livestock and equipment and other pension provision, it could be a very useful catalyst. However, we will need to await the detailed rules before being able to fully advise our members.”

TFA believes the scheme will be attractive to three categories of farmer: small scale occupiers reaching the end of their career without successors; tenant farmers who have already begun or could begin discussions with their landlord about tenancy surrender, coupled with a compensation package from their landlord; and tenant farmers with succession tenancies with eligible and suitable successors.

However with regards to access to the scheme for owner occupiers, TFA said it was disappointed that Defra has not taken the opportunity to encourage longer term tenancies. Owner occupiers have the option of letting out their farms rather than selling them but are only required to offer tenancies of at least five years. In its response to the consultation, TFA will argue that the minimum length of time on a new lease should be 10 years rather than five years to help drive innovation, resilience and environmental improvement.

Chartered financial planner Sean McCann, of NFU Mutual, said it will be important for farmers to factor in the tax implications when deciding whether to take the lump sum exit.

“Should the scheme require them to sell land or property this could trigger a Capital Gains Tax charge. In addition, it could lead to higher Inheritance Tax bills as it would mean swapping land that often benefits from Agricultural Property Relief for cash that doesn’t,” he explained.

“If the scheme requires the farmer only to cease trading rather than sell, it could also result in higher Inheritance Tax bills on any land and buildings that have development potential. Getting the right advice will be vital.”

NFU vice president Tom Bradshaw added: “As our agricultural support is overhauled, farm businesses across the country will be making life-changing decisions about the future of their farm or tenancy. We want to see a fair transition which allows farmers who are considering leaving the industry to have sufficient time and information to make those significant decisions.

“We must also recognise the personal nature of this decision and how no two farm businesses are the same, meaning each set of circumstances for a farmer considering a lump sum exit payment will be truly unique. We will now be consulting with our members extensively to understand their views on these proposals.”

Mr Bradshaw added: “Of course, any discussion around people exiting the industry must be coupled with how we attract new people into agriculture. It’s crucial that the schemes announced today work in a coherent way with schemes such as the New Entrant Scheme and Future Farm Resilience Fund to ensure British farming has a thriving workforce for generations to come.”

Additionally, trade and policy must act in tandem and Defra’s policy transition must not ignore the consequences of the government’s new trade deals, Mr Bradshaw said, as these will be critical to the viability of many family farms.

The consultation will close for responses on 11th August 2021. A full report on the responses to the consultation will be published later in the year.

What are your thoughts? Email opinions@farmersguide.co.uk with your comments and insight.